"Slap on the Wrist" for a "Too Big to Fail" Hospital - Judge Rejects WakeMed Settlement

Maybe we are reaching an inflection point in how misbehavior by big health care organizations is handled in the US legal system. 

We have frequently discussed the march of legal settlements made by big health care organizations.  Many of these settlements indicated severely bad behavior, often behavior that seemed overtly dishonest, sometimes criminal, and had the potential to harm patients.  Yet most of these settlements involved only fines, and sometimes written agreements that pledge the organization will do better in the future, often in the form of deferred prosecution or corporate integrity agreements.  Yet the fines were often small compared to the amount the organization stood to make from the bad behavior.  It is not clear that any written agreements were enforced, or caused major penalties if the organization did not fulfill them.  And almost never did any individual within the accused organization suffer any negative consequences for authorizing, directing or implementing the bad behavior, even if such individuals may have personally profited from high compensation partially fueled by the bad behavior.

Now and then, though, there are cases that are different.  Perhaps one has just come along that may signal things are going to change.

The Basics of the Case

The case was first reported by the Raleigh (NC)  News & Observer in December, 2012.  Here are the basics:

WakeMed has agreed to pay $8 million to settle an investigation into its practice of billing Medicare for expensive overnight care when the patients had been treated and discharged the same day.

The settlement came after a lengthy criminal investigation into Medicare billing procedures used by nurses at the private, not-for-profit hospital’s Heart Center Observation Area.

Nurses there, according to federal court documents, routinely ignored physicians’ orders for how a patient should be classified. Their actions resulted in the hospital receiving millions of unwarranted Medicare dollars for outpatients who were classified wrongly as inpatients.

Though some WakeMed managers were aware of the billing practices, according to court documents, investigators found no evidence of anyone personally benefiting from the system.

No one, according to WakeMed officials, lost their job or was disciplined because of the investigation. 

The US Attorney made the usual sort of announcement:

'This case will serve as a reminder that hospitals, just like individual health care providers, will be held accountable for their actions,' [Thomas] Walker, the U.S. Attorney for the Eastern District of North Carolina, said in a statement.

Read more here: http://www.newsobserver.com/2012/12/19/2555092/wakemed-admits-to-false-medicare.html#storylink=cpy

So far, this is pretty usual.  There were accusations of inflated billing, a monetary fine that might look big to the average citizen, but that pales next to the revenue of the offending organization (over $943 million in the 2010-2011 fiscal year according to the WakeMed 2011 US form 990),a stern statement by the US Attorney, but again no penalties for any individual, and here, a rather implausible statement that no one benefited from the deceptive practices.

However, there were also some immediately appreciable atypical elements to this case.

Atypical Elements

In addition to the fine to be paid, the case was to be settled using a deferred prosecution agreement:

The hospital faces two criminal charges – making material false statements relating to health care matters and aiding and abetting, but under the settlement reached Wednesday, prosecution will be deferred. If the hospital complies with provisions in the settlement agreement, such as paying $8 million and allowing further monitoring, the charges will be dismissed in two years, according to court documents.

As part of the agreement, which has yet to be approved in court, [Wakemed CEO Bill] Atkinson acknowledged the wrongdoing described by prosecutors. He further acknowledged that WakeMed was responsible for the acts of the health-care organization’s employees and officers.

Read more here: http://www.newsobserver.com/2012/12/19/2555092/wakemed-admits-to-false-medicare.html#storylink=cpy

Read more here: http://www.newsobserver.com/2012/12/19/2555092/wakemed-admits-to-false-medicare.html#storylink=cpy

Read more here: http://www.newsobserver.com/2012/12/19/2555092/wakemed-admits-to-false-medicare.html#storylink=cpy

While we have sometimes seen deferred prosecution agreements used in cases in which for-profit health care corporations were accused of violating the law, they are rarely used in cases involving non-profit hospitals.  (The biggest one I recall was that of the University of Medicine and Dentistry of New Jersey, a complex case we started discussing in 2005.  See relevant posts here.)  Criminal charges against a non-profit hospital are also unusual.  Note also that as stated above the hospital system CEO seemed to admit that the hospital did wrong, raising further doubt about the conclusion above that no individual personally profited.

The plot further thickened when the CEO seemed to contradict his own statement within the deferred prosecution agreement that acknowledged wrong-doing.

In an interview Wednesday, Bill Atkinson, WakeMed’s president and CEO, wavered between accepting the charges – saying repeatedly  'I don’t want to minimize it, and I don’t want you to hear me doing that' – and being adamant that the hospital’s actions were simply a misinterpretation of complicated federal Medicare guidelines.

Even though he endorsed a settlement agreement in which prosecutors contend two crimes occurred, Atkinson said he doesn’t believe the hospital’s actions were criminal.

'I don’t think so, but the federal government thinks they could certainly turn it that way,' he said. That description differs vastly from what prosecutors contend. 'They’re not going to minimize the media effect,' Atkinson said.

Read more here: http://www.newsobserver.com/2012/12/19/2555092/wakemed-admits-to-false-medicare.html#storylink=cpy

The plot thickened further when in the same interview Atkinson seemed to deny that any individual did anything wrong:

Heidi McAfee, who retired earlier this year, was director of Patient Access during much of the period when the problematic billing occurred. Efforts to reach McAfee on Wednesday were unsuccessful, but Atkinson praised her years of work with WakeMed.

'Do I think anybody intentionally did anything wrong?' Atkinson said. 'No, I don’t.'

He said WakeMed had not reported McAfee or any of the nurses to the N.C. Board of Nursing for ignoring doctor’s orders. 

So did the hospital acknowledge wrongdoing, or did it not?  If wrongdoing did occur, did any individual do it, or was it done by ghosts or spirits?  From this account, it was unclear.

This Time the Inconsistencies and Ambiguities are not Ignored

Many of the settlements we have discussed seem to have been based on similar illogic.  For example, they often involved accusations of bad behavior, often bad enough to put patients at danger, yet the settlements may included ritualistic statements by defendant organizations that they neither admitted nor denied wrongdoing.  Thus, the settlements left ambiguous and unknown what really happened, and their own appropriateness.  (Note that similar settlements are made all the time by big financial firms, and one intrepid judge did point out how little sense they make, see this post.)

Yet in most cases, the illogic is rapidly swept under the rug, noticed, if at all, by lowly outsiders like your humble bloggers on Health Care Renewal.

This time, though, it was different.

Why Would the Nurses Ignore Doctors' Orders?

An important part of the argument by the US Department of Justice in this case was that nurses "routinely ignored doctors' orders."  If it were true, this would be very unusual and would threaten the integrity of health care at the particular institution, since every hospital operates on the assumption that the doctors make management decisions and order tests, treatments, etc, and then the nurses, as well as technicians and therapists carry out these orders.

However, In this case, a local nurse immediately and publicly disputed the notion that the nurses were independently flouting the doctors' orders.  As reported again by the News & Observer in December, 2012,

When Vicki Hewitt-McNeil read about WakeMed’s $8 million settlement for wrong Medicare billing, the Raleigh nurse didn’t buy the story.

According to the settlement, a nursing director instructed her staff to admit patients as inpatients and ignore doctors’ orders to treat them on the less expensive outpatient basis.

With two decades of nursing experience, Hewitt-McNeil didn’t like that the blame was shifted down the totem pole to nurses, who don’t wield the power of administrators and doctors.

'I honestly cannot believe this was the nursing department that did this,' Hewitt-McNeil said. 'That’s just not possible.'

 Furthermore,

[Ms Hewitt-McNeil]  also worked shifts at WakeMed as a pool nurse, similar to working as a substitute teacher. 'Nurses at WakeMed don’t have the autonomy to do anything,' Hewitt-McNeil said. 'You have to call a doctor for everything.'

Read more here: http://www.newsobserver.com/2012/12/22/2561738/nurse-rejects-wakemeds-claim-that.html#storylink=cpy

Again, the contention that the nurses systematically disobeyed doctors or pretended to be following non-existent orders implied a fundamental break-down of the system and widespread unprofessional, unethical behavior by the nurses.  In addition, the charges did not suggest why the nurses would do something so bad, especially since they were in no position to personally benefit from their actions.

 What Did the Hospital Leadership Actually Admit?

Read more here: http://www.newsobserver.com/2012/12/22/2561738/nurse-rejects-wakemeds-claim-that.html#storylink=cpy

Read more here: http://www.newsobserver.com/2012/12/22/2561738/nurse-rejects-wakemeds-claim-that.html#storylink=cpy

It took a few weeks, but someone - it is not clear who it was - noticed that while the Department of Justice asserted that the hospital CEO had admitted wrongdoing, the CEO's public statement seemed to equivocate.  So in mid January, 2013, as reported again by the News & Observer,

Deb Laughery, a spokeswoman for the hospital, issued a clarification on Monday.

'In an abundance of caution, WakeMed confirms that it has agreed to a settlement with the United States as set forth in the Deferred Prosecution Agreement,' the statement said, adding further that statements of fact laid out in the agreement were 'true and accurate.'

In the clarification, WakeMed officials acknowledged that the hospital formally faced federal criminal charges. The hospital also retracted any suggestions that the settlement only involved a small number of cases.

The hospital public relations person apparently could not bring herself to say that the hospital admitted wrongdoing, but by acknowledging that statements of fact in the deferred prosecution agreement were "true and accurate," she seemed to be indirectly admitting again that wrongdoing occurred, and that the hospital was responsible for the actions of its employees.

The Judge Notices the Emperor Has No Clothes

Despite their internal inconsistencies and illogic, most legal settlements of accusations of wrongdoing by big health care organizations are accepted by judges.  In this case, again things were different.  As reported yesterday, on 17 January, 2013 again by the News & Observer,

 WakeMed officials and federal prosecutors spent two years hammering out an $8 million proposal to settle a Medicare fraud investigation.

A federal judge shredded the 116-page agreement in less than 30 minutes on Thursday.

U.S. District Judge Terrence Boyle ticked off a list of his grievances about the proposal, forcing federal prosecutors into the unusual position of defending the defendants.

Read more here: http://www.newsobserver.com/2013/01/17/2614178/judge-refuses-to-accept-wakemed.html#storylink=cpy

Quelle surprise!  The judge took particular offense that the settlement seemed disproportionately lenient,

 The agreement, Boyle said, appeared to be a 'slap on the hand' for a 'too big to fail' corporate giant. Only the day before, Boyle told the lawyers, he sentenced a woman to a year in prison in a $235,000 insurance fraud case.

Furthermore, 

Read more here: http://www.newsobserver.com/2013/01/17/2614178/judge-refuses-to-accept-wakemed.html#storylink=cpy

Boyle was irked that no criminal charges had been filed in the case. He ended the hearing by telling the prosecutor either to fold his briefcase or take it to a federal grand jury for official indictments.

'There are lots of corporations that steal from the government,' Boyle said. 'Most of them are convicted, fined and banished.'

Also,

'Why are you coming to court if you tell me you don’t need me?' Boyle asked Gilmore, the prosecutor who rose before him Thursday. 'I’m just window dressing in this case.'

'Why not take a guilty plea, defer imposition of the judgment and sentence, and come back in two years later and take a post hoc dismissal?' Boyle asked later.

Boyle lamented the increased number of health care fraud cases across the country.

'Who are the victims in this case?' Boyle asked before answering his own question. 'Every American wage earner and every American citizen.'

Boyle continued: 'It’s very difficult for society and the court to differentiate between the everyday working Joe or Jane who goes to prison and the nonprofit corporate giant who doesn’t go to jail, who gets a slap on the hand and doesn’t miss a beat.'

Exactly.   And finally, just to demonstrate the sense of impunity of the leadership of this particular nonprofit corporate giant

Boyle, who’s been a federal judge for 28 years, also criticized WakeMed for failing to send a top administrator or a board member to answer his questions. It’s rare for a criminal case to be resolved without a defendant at the defense table.

Deb Laughery, a WakeMed spokeswoman, said after the hearing that none attended because the board approved a resolution earlier in the week supporting the proposed settlement.

Summary

For years now the leadership of large health care organizations have grown rich while denying accountability for their actions that made this so.  This denial has been largely abetted by governmental regulators and law enforcers, who while often recognizing that corporate misbehavior has occurred, have seemed unable or unwilling to pursue anything but the most lenient resolutions of such cases.  These resolutions are often fines that might appear big to gullible members of the public, but are actually small in comparison to the money to be made; sometimes deferred prosecution and corporate integrity agreements that rarely are enforced; and almost never any negative consequences for the people who authorized, directed, or implemented the bad behavior.  Thus the leaders of health care organizations have enjoyed impunity, have become the new untouchables, and thus health care organizations become ever better at raking in money and ever worse at providing good health care.

As I have said again and again,  until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations.

Read more here: http://www.newsobserver.com/2013/01/17/2614178/judge-refuses-to-accept-wakemed.html#storylink=cpy

Read more here: http://www.newsobserver.com/2013/01/17/2614178/judge-refuses-to-accept-wakemed.html#storylink=cpy

Read more here: http://www.newsobserver.com/2013/01/17/2614178/judge-refuses-to-accept-wakemed.html#storylink=cpy

Read more here: http://www.newsobserver.com/2013/01/15/2607671/wakemed-clarifies-statements-on.html#storylink=cpy

Just the Latest Legal Settlement for HCA

Last month, we posted about investigative reports that suggesting that for-profit hospital chain HCAwas pushed by its private equity owners to put short-term revenue ahead of good patient care.  A legal settlement announced this week corroborates these concerns. 

As reported by television station WRCB in Chattanooga, TN,

HCA Inc., one of the nation's largest private hospital chains, has agreed to pay $16.5 million to settle alleged violations of the Ethics in Patient Referrals Act (also known as the Stark law), the False Claims Act, and other federal and state laws and regulations in connection with the operation of its subsidiary, Parkridge Medical Center, Inc., in Chattanooga.
In addition, Parkridge Medical Center has entered into a comprehensive five-year Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services (HHS-OIG) to ensure its continued compliance with federal health care benefit program requirements.
As alleged in the settlement agreement, during 2007, HCA, through its subsidiaries Parkridge and HCA Physician Services (HCAPS), entered into a series of financial transactions with a physician group, Diagnostic Associates of Chattanooga, through which it provided financial benefits intended to induce the physician members of Diagnostic to refer patients to HCA facilities.
The financial benefits included lease of office space from Diagnostic at a rental rate well in excess of fair market value to meet the mortgage obligations of the Diagnostic members and release of Diagnostic members from a separate lease obligation. These financial arrangements violated the Ethics in Patient Referrals Act and the Anti-Kickback Statute – laws designed to protect patients as well as the integrity of government-funded health care benefit programs such as Medicare, Medicaid, TRICARE, and TennCare.

The issue here were allegations that HCA and its subsidiaries were paying physicians extra so that they would refer patients to an HCA hospital. Obviously, physicians are supposed to put each patient's interests ahead of extraneous considerations, and hence should make referral decisions based on the patients needs, and the likely benefits and harms of the referral, not the amounts the physicians might make from such payments.

Referrals for particular services can be very lucrative for hospitals.  So this settlement seems to provide more evidence that to get profitable referrals, HCA was willing to subvert physicians' values by paying physicians to induce to make what might have been the wrong decisions for individual patients.  Of course, in this situation some physicians were hardly blameless, since they were also willing to set aside their values to receive the payments that generated those referrals.

This fits with the thesis we advanced last month.  While hospitals are supposed to have a mission to put care of the sick ahead of all else, it appears that for-profit hospitals, and especially those owned by private equity are more likely to put short-term revenue ahead of patient care.

As an aside, while this settlement provides useful information, do not think of it as a solution to the immediate problem. 

As we have frequently asserted, it is doubtful that the relatively small payment and the relatively unlikely to be enforced corporate integrity agreement imposed in this settlement will change the company's behavior, in the absence of any negative consequences for the people who authorized, directed or implemented the bad behavior.  HCA once made a $1.7 billion fraud settlement, at the time the biggest such settlement ever made (see this post).  However, the company's CEO at the time, Rick Scott, left the firm with a golden parachute and no negative consequences, and is now Governor of Florida.  If that previous huge settlement did not deter the more recent bad behavior in the absence of any penalties for company executives, why should we expect that the current comparatively tiny settlement also in the absence of such penalties will have any effect?

As we have now said many, many times, 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.

Furthermore, as I wrote last month, we need to challenge the notion that direct health care should ever be provided, or that medicine ought to be practiced by for-profit corporations. Before market fundamentalism became so prominent, many stated prohibited the corporate practice of medicine, and the American Medical Association forbade the commercialization of medicine. It is time to heed that wisdom. I submit that we will not be able to have good quality, accessible health care at an affordable price until we restore physicians as independent, ethical health care professionals, and until we restore small, independent, community responsible, non-profit hospitals as the locus for inpatient care.

Gentiva's Odyssey Healthcare Settles Again, Signs Yet Another Corporate Integrity Agreement

The Milwaukee Journal-Sentinel reported a legal settlement worth noting.  Here are the basics:

One of the nation's largest providers of hospice care has agreed to pay $25 million to settle a Medicare fraud case initiated after a former company nurse in Milwaukee filed a whistle-blower suit.

It was the second such settlement in six years for Odyssey Healthcare Inc., which paid the federal government $12.5 million in 2006 after another Wisconsin-based employee sued.

Also,

Medicare provides a benefit meant to cover hospice care for the terminally ill. It covers 24-hour in-home nursing service only during limited crisis periods. But from 2006 to 2009, Odyssey practiced a pattern of enrolling and recertifying non-terminal patients, and billing for continuous care that wasn't necessary or reasonable, according to the False Claims Act suit filed in 2008 but just unsealed Thursday.

As is usual in such cases, Odyssey's parent company denied that it did anything wrong:

Odyssey, which operates in 26 states, is now part of Atlanta-based Gentiva Health Services, which runs hospice offices in West Allis and Burlington. Gentiva officials declined to comment, but referred to an announcement it posted on its investor relations website last month.

'Gentiva cooperated fully with this investigation, which covered a period prior to our acquisition of Odyssey, and the settlement is consistent with our efforts to instill Gentiva's culture of compliance throughout the company,' said John Camperlengo, general counsel and chief compliance officer.

The statement said the firm is proud of the care its thousands of hospice clinicians provide, and of Gentiva's efforts to ensure strict compliance with all regulatory requirements.

The Implications of the Need for a New Corporate Integrity Agreement

However, there are some disturbing aspects of this case that require a bit more explanation. First, as noted by the Associated Press (in a story available here from the Dubuque [Iowa] Telegraph-Herald),

Besides agreeing to pay the $25 million settlement, Odyssey entered a five-year corporate integrity agreement with the federal government.

Now corporate integrity agreements are not known for their effectiveness. In fact, as we noted in this blog post, according to Gentiva's 2010 annual report, its Odyssey subsidiary had been subject to a corporate integrity agreement arising from its 2006 settlement, one which was apparently not effective in preventing its misbehavior from 2006 to 2009.

However, corporate integrity agreements do serve as markers for the need to improve the integrity of the corporations who need to make them. In this case, why would Gentiva be asked to sign such an agreement if its integrity were already beyond reproach? So Gentiva's current "culture of compliance" is open to question.

The Implications of "Enrolling and Recertifying Non-Terminal Patients"

A quick read of the Journal-Sentinel and Associate Press stories above might give the impression that what Odyssey did wrong involved a billing technicality, admittedly, one that allowed it to collect more money that that to which it would otherwise be entitled.

This story actually goes beyond the issue of fraud, and raises important concerns about patient care.

The enrollment  by a hospice of patients who are actually not terminally ill could have serious adverse effects on such patients. As we noted in this post, hospices are meant for patients with very limited life expectancies. The goal of hospice is to provide comfort and palliation, not active treatment of illnesses. So if patients who actually do not have such severely limited life expectancies are admitted to a hospice, they might be denied therapy that could actually make them feel better, or even cure acute illnesses or prolong their lives. For example, a hospice patient who developed an open wound might not get maximal wound therapy, as in an example (allegedly involving a different commercial hospice provider) in the post above.

So it is possible that Odyssey's enrolling and re-certifying of non-terminally ill patients could have lead to failure to provide some of these patients with the care they should have had. Whether this did or did not occur in individual cases, and what adverse effects may have been produced is not clear from the coverage of this case.  

Summary

As I wrote in 2011, .... There has been a lot of blather from politicians in the US about "death panels" in debates about health care reform. Many such politicians seem worried that the US government has or will have death panels under the new health care reform legislation. We have criticized that legislation for not addressing many important health care problems. No one, however, has convincingly demonstrated how its provisions would convene "death panels."


Wendell Potter argued in his book, Deadly Spin, (see this post) that for-profit insurance companies had their own "death panels." The Bloomberg article strongly suggests that for-profit hospices may also act like death panels. In search of more revenue, for-profit hospices may enroll patients who are not at the end of life, but then provide them only "comfort care," so that if they develop new conditions that are treatable, they are likely to die in the absence of treatment.

I am waiting for the politicians who so enthusiastically condemned the supposed "death panels" to be found in health care reform legislation to condemn for-profit hospices for behaving like death panels.

In my humble opinion, the case discussed above are the strongest argument yet that we need to reconsider our headlong rush to turn health care, particularly the direct care of patients, over to relatively unregulated, for-profit corporations. The cases above suggest that the pursuit of revenue ahead of patients' welfare by such organizations may lead to sick and dead patients.

I cannot see how for-profit direct patient care can be made safe for patients without intense government regulation. If any of those vocal advocates of "free market" health care (in the absence of any good explanation of how health care can ever be an ideal free market, see this post) can explain to me how for-profit hospices can be made safe for patients without such regulation, I would welcome their attempts.

Meanwhile, this just calls out for legislative and legal investigation, and urgent policy changes.
 
By the way, the case above also shows how the current approach used by the government to address misbehavior in health care does not work.  We have noted previously how these legal settlements often only lead to financial penalties imposed on companies, not individuals, which diffuses their impact, and provides no disincentives to future bad behavior by individuals.  Sometimes corporate integrity agreements are added, but as in the current case, they also seem not to deter future bad behavior.   So, I further conclude, de rigueur, 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. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Elan, Eisai Settle for Related Reasons

The parade of legal settlements of bad behavior by major health care organizations marches on. The latest to shuffle by are Elan Corp, based in Ireland, and Eisai Inc, based in Japan, for actions taken in the US.  According to Bloomberg:

Elan Corp. will pay $203 million and a U.S. unit of the Irish drugmaker will plead guilty to a misdemeanor charge to resolve an investigation of its marketing of the epilepsy medicine Zonegran.

Elan will pay $102.9 million to resolve civil claims and $100 million in criminal fines and forfeitures, according to the U.S. Justice Department. Japanese drugmaker Eisai Inc., which bought the drug from Elan in 2004 for $128.5 million, also will pay $11 million to settle civil claims.

The Elan Pharmaceuticals unit will plead guilty in federal court in Boston to a charge of misbranding Zonegran, which was approved by U.S. regulators for treatment of epileptic seizures in adults over age 16, the Justice Department said yesterday in a statement. Dublin-based Elan promoted Zonegran for uses including mood stabilization, bipolar disorder, migraine headaches, weight loss and seizures in children.

'Elan’s off-label marketing efforts targeted non-epilepsy prescribers and the company paid illegal kickbacks to physicians in an effort to persuade them to prescribe Zonegran for these off-label uses,' according to the statement.

The details were:

In 2002, EPI [Elan Pharmaceuticals Inc] 'came under significant financial pressure' because of an investigation of its financial practices by the U.S. Securities and Exchange Commission that caused shares to drop to $2 from $65 in six months, according to the criminal charge. In evaluating its options, EPI 'decided to retain Zonegran because of its large potential for growth, particularly in unapproved areas,' prosecutors said.

EPI then trained its sales staff to promote Zonegran for off-label uses, including for children, pain, psychiatric disorders, migraines and movement disorders, prosecutors said. Letters sent to pediatricians described how to administer Zonegran to a child by putting a capsule’s contents into applesauce, according to the document, which EPI will admit to in its guilty plea.

Doctors with the potential to write many prescriptions were invited on expense-paid trips to Bermuda, Key Largo, Florida, Banff in Alberta and Tucson, Arizona, to hear speeches on off- label uses, according to the charge. Sales 'increased dramatically,' rising 80 percent from August 2001 to August 2002, while 2003 revenue increased 87 percent over the previous year, prosecutors said.

So here we ago again, another week, another multi-hundred million dollar settlement. Once again, the settlement is of charges of deceptive marketing practices and kick-backs to physicians. Once again, the settlement involves criminal charges and a corporate integrity agreement, but does not involve any negative consequences for any individual who authorized, directed, or implemented the unethical practices.

We have noted recent cases, one in which a corporate executive was banned from doing business with the federal government, another in which a corporate executive was indicted, but not yet tried on criminal charges.  However, in most cases, the parade of legal settlements made by health care organizations has just marched on, sometimes including guilty pleas to criminal charges, often involving charges of kickbacks, fraud, conspiracy, and other colorful offenses. Most of these settlements entailed fines or other payments by the organizations that may seem huge, but were fractions of the amounts made by the practices that lead to the charges that were settled.  With the few exceptions above, (plus one other known exception, the disbarment from federal business of three former executives of Purdue Pharma, story here), almost never have the cases involved penalties for any individuals who authorized, directed, or implemented the misbehavior.  We have also been saying (seemingly endlessly, but most recently here) that such settlements may be viewed by organizations as merely the costs of doing business, and so until the actual people who were involved in the bad behavior suffer some negative incentive or penalty, expect the behavior to continue. 

Health care costs keep rising, access keeps declining, quality gets worse. We moan and wring our hands, but as long as we allow the rot to worsen, and the muck to grow, expect these trends to continue until the whole smelly mess collapses of its own weight (with all those rich executives escaping to their mansions.)

If we really want high quality accessible, reasonably priced health care, we need true health care reform that reduces concentration of power in large organizations, and makes health care organizations' leadership accountable, ethical, and transparent. That will not be easy.
(FULL DISCLOSURE - I own 3200 shares of Elan.  This is the only health care stock I own.  I have held it a long time, not bothering to sell since the shares have been worth little for years.  This has provided a lesson about how the share-holders of big health care corporations rarely profit from the executives' risk taking.) 

Wright Medical Settles, ... But Wait, There is Less

Everyone loves a parade, and so the parade of legal settlements by prominent health care organizations continues.  The latest to march into view is Wright Medical Group, as reported by Bloomberg:

Wright Medical Technology Inc. agreed to pay $7.9 million to resolve U.S. criminal and civil investigations into whether it paid kickbacks to induce doctors to use its hip and knee devices.

Prosecutors in Newark, New Jersey, today charged Wright with conspiring to violate a federal anti-kickback statue through consulting contracts with orthopedic surgeons. The U.S. agreed to drop the case in 12 months if a monitor agrees that Wright has reformed the way it hires consultants.

Wright, based in Arlington, Tennessee, also agreed to a $7.9 million civil settlement with the Justice Department and inspector general of the Health and Human Services Department to resolve fraudulent-marketing claims. The company entered into a five-year corporate integrity agreement.

Here we go again. A company is accused of giving kickbacks, aka bribes, to individual doctors, in this case orthopedic surgeons, to get them to use the company's products. Such payments clearly violate medical ethics (especially doctors' obligations to put the interests of patients ahead of their personal financial interests), leading to decision making not in the best interests of the patients. However, the penalty to the company itself is minuscule, only a fraction of the company's revenue, according to Google Finance, in 2009, just under $500 million. As we have noted endlessly before, financial penalties to corporations are diffused among all shareholders and employees, and possibly customers and patients.

Do we really expect that this penalty will change anything, or deter future bad behavior by this or any other company?

But our government continues to treat the corporate employees who authorize, direct, or implement bad behavior like this as essentially above the law. In this case, like in many others we have discussed previously, no one who authorized, directed or implemented the bad behavior will have to pay any sort of penalty or suffer any sort of negative consequences.  Does anyone in their right mind believe that Wright Medical really is

pleased to announce these agreements and look[ing] forward to working with the independent monitor as we continue our commitment to the highest standards of ethical and legal conduct

That was a quote from Wright Medical CEO Gary D Henley. He may be pleased to announce the agreements, since they really amount to such a tiny pinprick of a penalty. After all, Mr Henley will be able to to continue to use Wright Medical's revenues, virtually unaffected by this penalty, to justify his compensation (per the 2009 proxy statement, $2,036,517 in 2009, and his continuing accumulation of wealth, e.g., 436,601 shares of stock, currently valued at $13.86/ share according to Google Financial.)

I leave an assessment of what the company's previous commitment to "the highest standard of ethical and legal conduct" was to our dear readers.

We will not have true health care reform until we end the unholy alliance between big government and big health care organizations, that is, health care corporatism. Then, maybe, we can make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

An Attempt to Hold Health Care Leaders Accountable for Their Organizations' Bad Behavior?

We have frequently noted how health care organizations accused of kickbacks, fraud, and other unethical and sometimes illegal behavior involving how they produce or market health care products or services often are allowed to settle the charges only with a fines to the companies, and sometimes with corporate integrity agreements.  Almost never are the people who authorized, directed, or implemented the unethical behavior required to pay any sort of penalty.  We recently commented on a case in which an executive of a medical device company accused of exaggerating the performance of a diagnostic test in development was charged, not with misleading doctors or patients by the US Food and Drug Administration (FDA), but with misleading investors by the US Securities and Exchange Commission (SEC).  That executive lost her job, and will be barred from leading any public company.

So up to now, a corporate executive responsible for misleading doctors or patients about issues that could affect clinical decisions or outcomes likely would never pay a penalty, but one responsible for misleading  investors about similar issues could lose his or her job and livelihood.

Now, per an article in Fortune, it appear the situation may be changing,

The federal government is fed up with the amount of fraud, especially recurring fraud from the same companies, happening in the pharmaceutical industry. So regulators have decided that when it comes to punishments, it's time to get personal.

From now on, individual executives risk being ejected from their jobs -- and perhaps even barred from the industry -- for fraud their companies commit, even if they did not participate or even know about the crimes.

Furthermore,

The new approach, emerging from the unusually powerful Inspector General's office in the Department of Health and Human Services, reflects frustration with corporate recidivism even in the face of ramped-up fines, penalties and disgorgements.

'We are going to start to use that authority in the appropriate circumstances to get high level executives out of companies, so that the company has a better shot at changing its behavior, so that it does not become a recidivist,' explains Lewis Morris, chief counsel to the Inspector General.

The article noted some cases in which even large fines and corporate integrity agreements seemingly failed to deter future bad behavior by the companies which paid these penalties. For example,

In the government's most recent major settlement -- in which AstraZeneca agreed to pay $520 million -- the fine represented 16.5% of the $8.6 billion income (between 2001-2006) from U.S. sales of Seroquel, a powerful anti-psychotic. AstraZeneca (AZN) turned this narrowly approved drug into a cash cow by marketing it for much wider use, including by the elderly and children, even though they are particularly vulnerable to 'serious and debilitating side effects.'

All the while, AstraZeneca was operating under a corporate integrity agreement (CIA) with the Inspector General, imposed after a 2003 off-label marketing case.

We discussed the AZ settlement here in October, 2009. We asked then, "Does anyone really still believe that integrity agreements, and settlements assessed against huge corporations deter such profitable bad behavior?"

Another example:

Drug company Pfizer (PFE, Fortune 500), which was fined $2.3 billion just last September, is now on its third CIA. Steeper fines and harsh individual penalties should help put more teeth into these agreements and keep companies from flouting them.

We discussed the repeated lack of effect of settlements by Pfizer here in September, 2009. We concluded, "So will even a $2,300,000,000 settlement and yet another corporate integrity agreement make Pfizer or any other health care corporation act more ethically? I doubt it."

The Fortune article quoted Peter Rost, former Pfizer executive turned whistle-blower and ethics advocate (and to whose blog I offer a hat tip for first mentioning the Fortune article), on aspects of corporate culture and corporate incentives that foster repeated unethical behavior by management,

'Usually by the time someone becomes a senior executive they are very aware of the pitfalls in the organization, and they have become masters at not doing something wrong or not getting caught doing something wrong,' explains Peter Rost, a former senior Pfizer executive turned industry gadfly.

Incentive-based compensation systems -- typically 40% to 50% of salespeople's income comes from hitting their numbers -- are one weak point. 'They are going to work real hard to increase those numbers and do whatever it takes, and if they think somebody gave them a wink about doing this or that, they are going to run with it.' says Rost.

Booting senior executives out for any fraud under their watch might end the wink-and-nod system, giving hope to critics.

In my humble opinion, the government's new approach looks like real progress. Giving corporate executives personal impunity was a recipe for increasing unethical, and sometimes criminal behavior. The sorts of marketing fraud they authorized or directed certainly lead to increasing costs, and overuse of unnecessary and sometimes harmful tests and treatments. While there have years of complaints about health care's increasing costs and decreasing quality in health policy circles, it is just amazing that until now, there has been so little action against the bad behavior that was undoubtedly responsible for much of these problems.

So three cheers for making health care organizations' leaders accountable for the bad behavior of their organizations.

After cheering, however, there ought to be some serious inquiry about why they were not held accountable much sooner.  It turns out that there has been legal justification for holding leaders so accountable available for a long time:

All that's required for the government to flex this remarkably broad authority -- embedded in the Responsible Corporate Officers Doctrine -- is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.

Note that the Responsible Corporate Officers Doctrine apparently derives from a US Supreme Court case about the selling of misbranded or adulterated drugs into interstate commerce under the US Food and Drug Act, decided in 1943.

However, it looks like in the hyper laissez faire climate of the last 20 or more years, no one wanted to bother to invoke it. After all, the formerly highly regarded leader of the US Federal Reserve believed there was no need for regulators to punish fraud, because the magic of the market would take care of it. US health care has paid a heavy price for such breathtaking naivete (see the PBS Frontline show, "The Warning." )

Omnicare, IVAX Settle

Settlements and kickbacks and corporate integrity agreements, oh my (to the tune of "lions and tigers and bears, oh my")

To quote the BusinessWeek version of the story:

A $112 million settlement involving alleged drug kickbacks that the Justice Dept. announced with the nation's largest nursing home pharmacy and a generic drug manufacturer on Nov. 3 is part of a wide-ranging investigation of suspected Medicaid fraud by the pharmaceutical industry.

Under Tuesday's settlement, Omnicare will pay $98 million plus interest to the federal government and a number of state Medicaid programs to settle allegations that it participated in kickback schemes with IVAX, J&J [Johnson & Johnson], and two nursing home chains. IVAX, a subsidiary of Israel's Teva Pharmaceutical Industries (TEVA), agreed to pay $14 million plus interest.

Omnicare and IVAX entered 'corporate integrity agreements' to establish new training and policies to prevent future problems. Neither company admitted any wrongdoing.

Here are some details of the alleged wrong-doing:

Omnicare is a publicly traded pharmacy benefit manager for long-term care facilities that operates in 47 states, the District of Columbia, and Canada. It had revenues of $6.3 billion in 2008.

According to the settlement, Omnicare allegedly received $8 million in payments from IVAX in 2000-04 to buy $50 million in generic drugs and recommend that physicians prescribe them to their nursing home patients. Omnicare entered the contract even though its outside counsel repeatedly warned it might violate the federal anti-kickback law, the government alleged in its complaint, filed in March. Omnicare also took payments from New Brunswick (N.J.)-based J&J from 1999 to 2004 to aggressively persuade doctors to prescribe Risperdal, an anti-psychotic drug, and discourage use of alternative medications, according to the settlement.

In addition, Omnicare allegedly paid $50 million to nursing home chains Mariner Health Care and SavaSeniorCare in 2004 to keep referring their Medicaid and Medicare patients to Omnicare for pharmacy services.

It is noteworthy that these activities went on despite repeated advice of at least one attorney:

According to the government's complaint, Omnicare again ignored its outside counsel's advice that the payment was illegal.

The activities also went on despite Omnicare's participation in a previous corporate integrity agreement.

This isn't the first time Omnicare has had to settle civil fraud complaints filed by the government. In 2006, Omnicare agreed to pay $102 million to settle Medicaid fraud cases in 43 states, without admitting wrongdoing, including a $52.5 million settlement with Michigan. One complaint accused Omnicare of switching two drugs from tablet to capsule form to boost Medicaid payments. Omnicare had to enter a five-year corporate integrity agreement.

As I have written again and again regarding many other cases that resulted in legal settlements or guilty pleas, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior.

For once, the coverage of this case included some opinions similar to mine:

The Office of Inspector General of the Health & Human Services Dept. has the authority to bar health-care companies from participating in the Medicaid, Medicare, and other federal health programs as a penalty for violating anti-fraud laws. That's a severe sanction given the huge size of those programs. The settlements with Omnicare and IVAX left open the possibility of exclusion.

Some experts say Omnicare should be barred as a repeat offender, to send a strong message to other pharmaceutical industry players that fraud will no longer be tolerated. 'If the government were really serious, they'd give Omnicare the death sentence,' said Erik Gordon, a business professor at the University of Michigan who follows the pharmaceutical industry. 'Then all the other players would say this isn't just the cost of doing business, this is a bet-the-company thing.'

West declined to comment on whether the Justice Dept. will recommended the exclusion of the two companies, saying only that his office works closely with the OIG's office on appropriate penalties.

[Patrick] Burns, with Taxpayers Against Fraud, said the government has been hesitant to exclude health-care companies for fraud, fearing it will be seen as overzealous. But he believes that's the wrong attitude. 'Doing business with the U.S. government is a privilege, not a right,' he said. 'I think Omnicare has abused the privilege.'

Finally, note that the description of this case suggested that the kickbacks had effects on physicians' prescribing and hence the use of specific drugs. The Justice Department's filing alleged that in return for the payment from IVAX, Omnicare tried to get physicians to prescribe that company's products, and that in return for the payment from J&J, Omnicare pushed them to prescribe the atypical anti-psychotic Risperdal. Thus the activities that went on this case could have lead to the use of inappropriate, useless or even harmful drugs by certain patients.

I submit that would-be health care reformers who want to improve care, reduce costs and improve access should advocate for real negative consequences for people who implement, direct or approve the various versions of fraud, kickbacks, and miscellaneous corruption and malfeasance we have discussed on Health Care Renewal.

By the way, it appears one of the members of Omnicare's Board of Directors is also a leader in academic health care.  She is Andrea R. Lindell, DNSc, RN, who is also Dean of the College of Nursing at the University of Cincinnati.  One would think that someone who thus boasts "the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice" needs to keep a closer eye on the ethical aspects of her company's management.