Pharmacia, or Maybe Pfizer Settles, Only Eight Years Later

Didn't somebody say "justice delayed is justice denied?"* 

Here is a story for a Friday afternoon, via a press release from the New York state Attorney General's office, per Bloomberg:

Attorney General Eric T. Schneiderman today announced a multimillion dollar settlement with a pharmaceutical company that inflated the cost of drugs sold to state health programs. The company, Pharmacia Corporation, has paid $2.5 million to the New York Medicaid program and to the Elderly Pharmaceutical Insurance Coverage Program (EPIC), and also to cover the costs of the investigation.

Here is more information about the lawsuit:

The lawsuit, filed in 2003, charged that Pharmacia failed to report real and accurate prices, and did not take into account discounts, rebates, chargebacks and other price concessions to their wholesalers. As a result, New York's Medicaid Program and the EPIC program paid more for certain drugs manufactured by Pharmacia than those state programs should have.

This is an unusual entrant into our march of legal settlements. As noted above, this lawsuit took eight years to settle. The entity that made the settlement, Pharmacia, is actually long gone as an independent company. It merged into Pfizer in 2003 (see this). Despite the eight years of waiting, the settlement is extremely paltry compared to the size of the company to which the settlement now applies. According to Google Finance, in 2010, Pfizer's annual revenues were more than $67 billion.

This settlement adds in a small way to a series of settlements Pfizer has recently made.  Pfizer paid a $2.3 billion settlement in 2009 (see post here), and three other major settlements from then to early 2010 (see post here).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).  For other discussions of Pfizer on Health Care Renewal, look here. 

The New York Attorney General's press release claimed, "These are hard financial times for our state, and my office will do its part by uncovering every dishonestly claimed dollar, and holding those who take advantage of New York accountable."  Begging his pardon, but could he really have been serious that nicking Pfizer for $2.5 million eight years after the lawsuit was filed is really holding this giant company accountable?  Will this settlement make the company any more accountable than all those that came before, some almost one thousand times bigger?  Meanwhile, as is usually the case in these stories about the march of legal settlements in health care, no person who authorized, directed or implemented the questionable activity apparently paid any penalty or suffered any sort of negative consequences.

This week, Matt Taibi asked "why isn't Wall Street in jail?" in the title of his most recent Rolling Stone article.  I should also ask, why aren't some leaders of pharmaceutical, device, biotechnology, and managed care corporations in jail? 

Just as the leaders of big financial service firms seem to be completely unaccountable for the havoc they created in the global economy, and despite bluster by various government officials, the leaders of big health care corporations seem to be completely unaccountable for the unethical behavior of their companies that continue to inflate the health care bubble.

So for the nth time I will repeat:  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.

Meanwhile, the continued unwillingness of government leaders to take on corporate leaders suggests how corporatist the US has become. Government for the corporations, by the corporations, and of the corporations, bodes no good for the people whose rights are increasingly being displaced.

Mr Taibi encapsulated the problem in a more colorful way, and I will end with his version, somewhat edited for this family publication:

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

'Everything's f***ed up, and nobody goes to jail,' he said. 'That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that.'

* - the quote has been attributed to William Gladstone in a 1868 speech. but may be older than that (link here)

After Manufacturing Problems, Genzyme CEO's Golden Parachute Means "Failure = Success"

In late 2009, I posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post I asked why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities. In May, 2010, I posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.  And in August, 2010, I posted about how this series of management missteps could lead to the company's CEO becoming even richer because they lead to a declining stock price, which increased the likely that the company would be bought out, which could trigger the CEO's golden parachute.  I suggested then that were this to happen, it would be a gross example of how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.

Now it  looks like this will happen.  Yesterday, the Boston Globe reported:

Ggenzyme Corp., the largest biotechnology company in Massachusetts and one of the industry’s historic pioneers, has struck a definitive agreement to be bought by French pharmaceutical giant Sanofi-Aventis SA, in a deal valued at about $20.1 billion.

As a result of this deal,

Genzyme’s high-profile president and chief executive, Henri A. Termeer, who has run the company for 28 years, will resign following the close of the transaction. But he will advise Sanofi on integrating the two companies. Termeer built the company into a global operation with 10,000 employees worldwide and a business model that has been the envy of the biotechnology industry. He turns 65 on Feb. 28.

Termeer, though fiercely proud of Genzyme’s independence, stands to make more than $23 million when the sale is completed, according to a 'change of control' clause in his employment contract. In addition, as a major Genzyme shareholder, he would be in a position to cash out shares that last year were worth more than $275 million.

That and several other articles s noted that it was Genzyme's manufacturing problems that lead to the buy-out:

the string of events that made Genzyme vulnerable to a takeover began in the summer of 2009 when workers discovered viral contamination at Genzyme’s Allston Landing plant overlooking the Charles River.

Genzyme was forced to temporarily shut down and clean up the plant and ration shipments of its best-selling Cerezyme and Fabrazyme drugs, both of which treat enzyme deficiencies. The events created an opening for competitors such as Shire and Israel’s Protalix Biotherapeutics and sent Genzyme’s stock tumbling on the Nasdaq.

The dip in Genzyme’s share price drew activist investors, including Carl C. Icahn of New York and Ralph Whitworth of San Diego, who accumulated shares they hoped to sell at a rich premium. They pressured management to take steps to boost shareholder value, including a stock buyout and the elimination of 1,000 jobs worldwide.

Ultimately, the company gave Whitworth a seat on its board, and, after Icahn threatened to unseat Genzyme directors in a proxy battle, it granted two seats to his associates.

In many ways, industry watchers said, an acquisition became inevitable once Genzyme stumbled at its Allston plant.

A Bloomberg article noted that this sequence of events would lead to

The departure package [which] makes him 'one of the biggest all- time winners in biotech,' said [University of Michigan business professor Erik] Gordon, who has studied the pharmaceutical industry for three decades.

Our criticism of the Genzyme CEO's potential for reaping hugely perverse incentives was paralleled by Jim Edwards' critique of what actually happened:

Here’s how crazy CEO incentive compensation is: Genzyme (GENZ) CEO Henri Termeer walked away from his company with a payout that may be worth $300 million yesterday when Sanofi-Aventis (SNY) acquired his company. But the only reason Genzyme was acquired — triggering Termeer’s gargantuan change-of-control package — is because Termeer nearly ran his company into the ground, making his stock cheap enough for Sanofi to buy.

In other words, failure = success when it comes to change-of-control packages for CEOs.

So let me just repeat my conclusion from last August: As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer?

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt.