Sunday Settlement and Guilty Plea Roundup

Here we go again. 

AstraZeneca / Seroquel

We have posted frequently about allegations of devious marketing techniques used by AstraZeneca to promote its blockbuster atypical anti-psychotic drug Seroquel (quetiapine.)  See our posts here, here, here, here, and here.  Now, as reported by the New York Times, it is time for AZ to settle with the US government.

AstraZeneca has completed a deal to pay $520 million to settle federal investigations into marketing practices for its blockbuster schizophrenia drug, Seroquel, the Attorney General, Eric Holder, said at a news conference Tuesday afternoon.

'AstraZeneca paid kickbacks to doctors as part of an illegal scheme to market drugs for unapproved uses,' Kathleen Sebelius, secretary of health and human services, said at the event in Washington. She said the company promoted drugs for unapproved uses by children, the elderly, veterans and prisoners.

AstraZeneca agreed to sign a corporate integrity agreement with the federal government over its marketing of Seroquel for unapproved uses, but will not face criminal charges, company and federal officials said.

The company, based in London, has been accused of misleading doctors and patients by playing up favorable research and not adequately disclosing studies that show Seroquel increases the risk of diabetes.

Of course, an AZ spokesperson had a different take on it.

Glenn Engelmann, AstraZeneca’s U.S. general counsel, released a statement saying the company denies the allegations but settled the investigation with the payment.

'It is in the best interest of AstraZeneca to resolve these matters and to move forward with our business of discovering and developing important, life-changing medicines — while avoiding the delay, uncertainty, and expense of protracted litigation,' Mr. Engelmann said.

Johnson and Johnson / Topamax

On the other hand, the issue of how Johnson and Johnson marketed Topamax (topiramate), a drug approved for treating seizures, is a new one for Health Care Renewal.  Here is the story, via Bloomberg.

Two units of Johnson & Johnson will pay more than $81 million to resolve criminal and civil claims over illegal promotion of the epilepsy drug Topamax, the U.S. Justice Department said.

Ortho-McNeil Pharmaceutical LLC agreed to plead guilty to a misdemeanor and pay a $6.14 million criminal fine for misbranding the drug, the government said. Ortho-McNeil-Janssen Pharmaceuticals also will pay $75.37 million to resolve civil allegations that it illegally marketed Topamax and caused false claims to be submitted to government health programs.

While the Food and Drug Administration approved Topamax for the treatment of partial onset seizures, Ortho-McNeil Pharmaceutical promoted the drug for unapproved psychiatric uses, the government said. The company hired physicians through its 'Doctor-for-a-Day' program to join sales representatives in visiting doctors and to speak to colleagues about unapproved uses and doses, according to the government.

In this case, the company admitted wrong-doing as part of the specific plea agreement.

Under the plea agreement, Ortho-McNeil Pharmaceutical will admit that from 2001 to 2003 it promoted Topamax 'for certain uses not approved' by the FDA, according to a statement by Ortho-McNeil-Janssen.

The company 'voluntarily discontinued the program at issue before receiving the government’s first subpoena in the investigation,' according to the statement.

Ortho-McNeil-Janssen also will sign a five-year corporate integrity agreement with the U.S. Health and Human Services Department.

Summary

Once more, with feeling ....  We have discussed a series of legal settlements and criminal convictions and guilty pleas resolving cases of alleged wrong-doing by health care organizations. Almost none included any penalties for people who authorized, directed or implemented the bad behavior. None of the financial penalties were so big as to be more than another cost of doing business for the organizations involved. Corporate entities, but very rarely people have pleaded guilty or been convicted (almost always of misdemeanors), Some of the cases included gimmicks, like a subsidiary constructed only to plead guilty, that otherwise seemed to lessen accountability.

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

ADDENDUM (2 May,2010) - See also comments on the Hooked: Ethics, Medicine, and Pharma blog by Dr Howard Brody on the AZ settlement.

Post Title → Sunday Settlement and Guilty Plea Roundup

Pfizer (in the Guise of Pharmacia) Pfound to Violate Pfraud Law, While Pfizer CEO Made Pfederal Reserve Advisor

It was only a month ago that Pfizer Inc, the world's largest pharmaceutical company, submitted to a gargantuan $2.3 billion settlement and yet another corporate integrity agreement. As we posted here, this was the company's fourth major settlement of charges of unethical marketing behavior since 2002.

Now Pfizer is in trouble again. As reported by the AP,

A judge on Tuesday imposed $4.5 million in forfeitures on prescription drug company Pharmacia Inc.[a Pfizer Inc subsidiary] for misrepresenting prices and defrauding Wisconsin's Medicaid system.

A jury in February found that Pharmacia violated the state's Medicaid fraud law 1.44 million times over a decade. State Justice Department attorneys had demanded about $212 million in forfeitures, but Dane County Circuit Judge Richard Niess said jurors grossly overcalculated the number of violations.

After reviewing the evidence, the judge found the actual tally was 4,578.

He elected to set the forfeiture level at $1,000 per violation. The judge said he was concerned that if he ordered the maximum $68.6 million Pharmacia would pass the expense to consumers and nothing showed any of the fraudulent $7 million went directly to Pharmacia's profits.

On the other hand, the judge said, a $100 per violation forfeiture totaling $457,800 would 'not register so much as blip on Pharmacia's multibillion-dollar annual fiscal radar screen' and a higher amount would draw attention to the need to reform pharmaceutical reimbursement scales.

I must say that I do not understand the reasoning the judge used to set the penalties. If he thought that Pfizer would merely pass along a large penalty to patients, why would the company not pass along a smaller penalty to them.

In any case, this is just the latest in a long string of cases in which a health care corporation was found to have committed unethical or illegal acts, but the only the corporation itself, but not the people who actually performed, directed or authorized the acts, paid a penalty. And when the penalty is paid by the corporation, its impact can be spread over all stock-holders, all employees, and all patients, clients, or customers, thus diluting its effect, and protecting those who authorized, directed, or performed the acts in question.

I submit again that only when the people in health care leadership who perform, direct or authorize bad behavior pay penalties will bad behavior be deterred.

Note that while Pfizer may be the world's largest pharmaceutical corporation, it seems to be the corporation most often cited for, convicted of, or having to make settlements for bad behavior (see some recent examples here). (Although in the current case, you would have to read the news report very carefully to realize that Pfizer was involved. The fact that Pharmacia is a Pfizer subsidiary was only mentioned in passing.)

Nonetheless, one would think Pfizer's leadership would be ashamed, and their reputation would suffer. But no. At about the same time this latest settlement was announced, this report from Reuters appeared:

The Federal Reserve Bank of New York said on Thursday that Pfizer (PFE.N) chief executive Jeffrey Kindler and Loews Corp (L.N) chief executive James Tisch will fill the two vacancies on its board of directors.

Kindler was elected to finish a three-year term ending Dec. 31, taking the seat PepsiCo (PEP.N) chief executive Indra Nooyi resigned from in February.

Regional Federal Reserve banks' boards of directors offer recommendations on Fed policy, but have no policy-making powers. They also provide anecdotal information about the business conditions that help inform the central bank.

Regional Fed banks have three classes of directors: Class A, elected by member banks to represent banks; Class B, elected by member banks but representing the public; and Class C, which represent the public but are chosen by the Board of Governors in Washington.

Kindler and Tisch join Jeffrey Immelt, chairman and chief executive of General Electric (GE.N) as Class B directors.

I suppose Kindler could offer quite a bit of "anecdotal information" about bad behavior in the pharmaceutical industry. But it seems rather comic to think about the CEO of the world's biggest, and lately baddest pharmaceutical company as "representing the public." Rather, and more seriously, this is just the latest example of how leaders of health care organizations have joined the superclass, and how the superclass protects its own.

Post Title → Pfizer (in the Guise of Pharmacia) Pfound to Violate Pfraud Law, While Pfizer CEO Made Pfederal Reserve Advisor

Intermune Executive Convicted of Fraud

From today's New York Times comes word of an unusual legal case,

In a verdict that could strike fear into pharmaceutical industry executive suites, the former head of a drug company was convicted of wire fraud Tuesday for issuing what federal prosecutors called a misleading press release that contributed to off-label sales of his company’s drug.

But the executive, W. Scott Harkonen, the former chief executive of InterMune, was acquitted by the federal jury in San Francisco of a related charge of off-label marketing itself, known as 'misbranding,' the Justice Department said.

The case was unusual because off-label marketing cases are often settled with the company paying a fine. It is rare for prosecutors to press charges against individual executives.

'Today’s verdict demonstrates that pharmaceutical executives will not be able to hide behind a corporate shield when they promote drugs using false or fraudulent information,' Thomas P. Doyle, a special agent in the Food and Drug Administration’s office of criminal investigations, said in a statement Tuesday.

InterMune’s drug, Actimmune, was approved for two rare genetic conditions. But the main sales of the drug, which peaked at $141million in 2003, came from an unapproved use: treating idiopathic pulmonary fibrosis, a scarring of the lungs that can be fatal.

InterMune conducted a large clinical trial testing Actimmune as a treatment for the lung disease. The drug did not achieve the goal of the trial, which was to improve lung function compared with a placebo. But InterMune found that if only the patients in the trial with mild or moderate disease were considered, those who got the drug lived longer than those who received the placebo. The company highlighted the 'survival benefit' in a news release, issued in August 2002. [Editor's note - if the primary study outcome was improvement of lung function, and the only 'positive' result was improvement of survival in one sub-group, that result may have been due to chance alone, due to multiple statistical comparisons. If one does analyses on multiple sub-groups and for multiple endpoints, the likelihood of finding a 'significant' result increases with the number of such analyses done.]

Prosecutors said the news release was part of a scheme to induce off-label sales of Actimmune, also known as interferon gamma, which costs about $50,000 a year.

[The company's attorney] Mr. Topel said interpretation of the clinical trial results was a matter of debate. 'One position in a scientific dispute has been criminalized — quite an astonishing thing,' Mr. Topel said in an interview.

Wire fraud carries a maximum sentence of 20 years in prison and a $250,000 fine. Dr. Harkonen, who remains free on bail, has not been sentenced.

A medical doctor by training, he was chief executive of InterMune from February 1998 until June 2003.

InterMune agreed to pay about $37 million in 2006 to settle charges related to Actimmune marketing. The company, based in Brisbane, Calif., also entered into a five-year corporate integrity agreement with the Department of Health and Human Services.

In 2007, a second big trial of Actimmune found that the drug did not prolong lives of patients with pulmonary fibrosis. Sales of the drug have dwindled year by year. [Editor's note - this suggests again that the result in the sub-group from the first trial might have been a false positive due to multiple comparisons.]

This case is unusual because it involved the prosecution of an individual who appeared to be responsible for the allegedly unlawful conduct. In most cases of unethical or unlawful conduct alleged on the part of health care organizations, at most it is the organization itself that has paid the penalty, usually in the form of a fine, sometimes accompanied by a corporate integrity agreement or deferred prosecution agreement. (See relevant posts here.)

We have argued that such penalties applied to corporations do little to deter bad behavior. A fine can just be a cost of doing business. The cost of the fine may diffuse across the whole organization. For public for-profit corporations, the fine may finally be paid by stockholders (through lower dividends or lower stock appreciation), employees as a group (through lower pay), and customers, clients, or patients (through higher prices). So the penalty may ultimately be spread over a large number of people, hardly any of which were actually responsible for the bad behavior. The few people responsible, who could include people who implemented, directed, or approved the behavior, usually have suffered no consequences. So what is to deter such people from again behaving badly?

So this case seems to be a step forward. One may argue whether off-label marketing should be illegal, but it currently is illegal. Corporate leaders who do not like this law ought to strive to change it, not violate it. If the law is to be upheld, when someone within a corporation implements, directs or approved illegal off-label marketing, then that person should suffer the consequences.

Post Title → Intermune Executive Convicted of Fraud

Pfour Legal Settlements for Pfizer - Why is the Company "Recidivist?"

We recently posted about Pfizer's $2.3 billion dollar settlement with the US government (here), which we first mentioned six months ago (here). It is worth reviewing what we know about this settlement. We will start with quoted from the article by Gardiner Harris writing in the New York Times. We will also use quotes from other articles listed below:

A Big Settlement

(from the NYT)

The pharmaceutical giant Pfizer agreed to pay $2.3 billion to settle civil and criminal allegations that it had illegally marketed its painkiller Bextra, which has been withdrawn.

It was the largest health care fraud settlement and the largest criminal fine of any kind ever.

The penalties include a very large criminal fine, an even larger civil fine, and a corporate integrity agreement (from the NYT).

Under the agreement with the Justice Department, Pfizer will pay a $1.3 billion criminal penalty related to Bextra and $1 billion in civil fines related to other medicines. In addition, a Pfizer subsidiary, Pharmacia and Upjohn, will plead guilty to violating the Food, Drug and Cosmetic Act for its promotion of Bextra. The company has agreed to sign another corporate integrity agreement that requires senior company executives to annually certify legal compliance and mandates that Pfizer post on its Web site many of its payments to doctors.

For Specific Unethical and Illegal Activities

The activities for which Pfizer incurred the penalties included marketing drugs for "off-label" indications for which the company did not have US Food and Drug Administration (FDA) approval, and other deceptive marketing practices (from the NYT).

The government charged that executives and sales representatives throughout Pfizer’s ranks planned and executed schemes to illegally market not only Bextra but also Geodon, an antipsychotic; Zyvox, an antibiotic; and Lyrica, which treats nerve pain.

[Acting US Attorney for Massachusetts] Mr. Loucks, the prosecutor, accused Pfizer of aggressive marketing tactics.

'Among other things, Pfizer did the following: Pfizer invited doctors to consultant meetings, many in resort locations. Attendees expenses were paid; they received a fee just for being there,' he said. Such weekend getaways for doctors are still common throughout the drug and medical device industries.

Also, per the Newark Star-Ledger,

The government said the company promoted four prescription drugs, including the pain killer Bextra, as treatments for medical conditions different from those the drugs had been approved for by federal regulators. Authorities said Pfizer's sales representatives often created phony doctor requests for medical information in order to send unsolicited information to doctors about unapproved uses and dosages.

The civil settlement covered Pfizer's promotions of Bextra, blockbuster nerve pain and epilepsy treatment Lyrica, schizophrenia medicine Geodon, antibiotic Zyvox and nine other medicines. The agreement with the Justice Department resolves the investigation into promotion of all those drugs, Pfizer said.

The government said Pfizer also paid kickbacks to market a host of big-name drugs: Aricept, Celebrex, Lipitor, Norvasc, Relpax, Viagra, Zithromax, Zoloft and Zyrtec.

Pfizer's Previous Unethical Behavior

Pfizer has previously been charged with unethical conduct, and the penalties it paid for this conduct did not seem to deter it (from the NYT).

It was Pfizer’s fourth settlement over illegal marketing activities since 2002.

'Among the factors we considered in calibrating this severe punishment was Pfizer’s recidivism,' said Michael K. Loucks, acting United States attorney for the Massachusetts district.

Much of the activities cited Wednesday occurred while Pfizer was in the midst of resolving allegations that it illegally marketed Neurontin, an epilepsy drug for which the company in 2004 paid a $430 million fine and signed a corporate integrity agreement — a companywide promise to behave.

Some more details of these settlements, from the Philadelphia Inquirer,

Repeat Offender: Previous Pfizer Settlements

April 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.

May 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.

October 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.

On Health Care Renewal, we have posted about other instances of unethical behavior by Pfizer. Most recently, these included producing allegedly misleading direct to consumer (DTC) advertising about Lipitor (see post here), and conducting unethical research in Africa (see post here).

So it appears that Pfizer is, as the prosecutor put it above, recidivist. Why has the company repeatedly behaved unethically? One argument is that company executives have learned that the rewards of unethical behavior exceed its costs (thus, are responding to a form of perverse incentives.)

Perverse Incentives Favoring Unethical Behavior

The fines paid by Pfizer were not that large for a company of Pfizer's size (from the NYT).

While the government said the fine was a record sum, the $2.3 billion fine amounts to less than three weeks of Pfizer’s sales.

In lieu of other punishments, the company's managers may just look upon paying fines as the cost of doing business. Per ABC News,

Industry insiders say drug companies often forgo legal considerations in favor of profit.

If companies, people or entities 'are able to make that decision and determine that there's an economic incentive to break the law, they'll break the law,' said Reuben Guttman, attorney for Glen Demott, a former Pfizer drug representative.

Change in a financially driven industry depends on whether a few billion dollars of penalty will affect the company's net profits or share costs. In 2008, Pfizer earned $48.3 billion in revenue.

Bloomberg commentator Ann Woolner said one reason the penalties have not been stiffer is that somehow the government views the company as too big to fail.

So how does Pfizer get away with civil settlements given its history? The penalties have ranged from hand slaps to a light punch in the gut, none of which have hurt the company enough for things to change. Last year Pfizer earned $8.1 billion on sales of $48.3 billion.

The New York-based company repeatedly winds up as the target of government accusations. Its misdeeds cost federal and state programs hundreds of millions of dollars, says the Justice Department, not to mention the human suffering that comes with taking the wrong drug in the wrong dosage.

But Pfizer is the pharmaceutical equivalent of insurance giant American International Group Inc., which was too interwoven into the global economy to be allowed to fail. Likewise, if Pfizer were convicted of a crime, it would face debarment from federal programs. And that would mean that Medicaid and Medicare patients would have to either somehow pay pocket for vital medicines the company produces or go without.

'You have to balance the desire, an appropriate desire, to punish the company against the harm to patients,' says attorney Kelton.

This begs the question about why no people, save for two relatively low level managers, no individuals paid any penalties. The unethical behaviors listed above must have been implemented by scores of line personnel, lead by mid-level managers. They, in turn, were acting at the behest of a hierarchy of managers and executives, culminating in "C-level" officers, lead by the CEO. Finally, these executives all reported, in theory at least, to the board of directors.

So almost none of the people responsible for the unethical activities paid any penalty. No individuals had to pay fines, or even lose their jobs, much less face criminal proceedings. Maybe the apparent ability of company personnel, starting with those in the trenches, all the way up through levels of management to the CEO, and thence to the board of directors to act with impunity has lead to a culture of amorality.

A Culture of Amorality

Some evidence that the culture of the company is pathologic comes from former Pfizer insiders charged that the comany's culture promotes unethical behavior (from the NYT).

John Kopchinski, a former Pfizer sales representative whose complaint helped prompt the government’s Bextra case, said that company managers told him and others to dismiss concerns about the Neurontin case while pushing them to undertake similar illegal efforts on behalf of Bextra.

'The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player,' said Mr. Kopchinski

Also, per ABC News,

'At Pfizer, I was expected to increase profits at all costs, even when sales meant endangering lives,' Kopchinski said, in a statement. 'I couldn't do that.'

In light of the list of unethical behaviors documented above, that company leaders deny any big problems itself becomes a problem (from the NYT).

Amy W. Schulman, Pfizer’s general counsel, said that Pfizer had reformed — again.

'The reasons to trust Pfizer are because, as I have walked the halls at Pfizer, you would see that the vast majority of our employees spend their lives dedicated to bringing truly important medications to patients and physicians in an appropriate manner,' she said.

Note that the majority of Pfizer employees may be ethical, but all it takes to accomplish unethical behavior is a few people in key leadership positions willingo to direct unethical activities to increase sales and profits, and for their subordinates to be willing to just follow orders.

Also, per a report in Bloomberg News, Ms Schulman added,

This gives us a very important opportunity to put final closure on the universe of material open items involving our U.S.-based operations.

This is a significant opportunity because it allows Pfizer to return its attention to the things that really should matter most to a biopharmaceutical company, which is the practice of developing innovative medications and bringing them to market in an appropriate fashion.

Summary: What is to be Done?

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.

Remember, Pfizer may be a corporation, and thus be before the law a sort of pseudo-person. However, it is not really a person.

In this settlement, like others before it, it was people who implemented the behavior, made the decisions which lead to the behavior, and condoned the behavior. The people involved ranged from those in the trenches, through layers of management, to C-level executives, to the board of directors. In my humble opinion, until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior.

Finally, I say again that we cannot improve health care until we address this sort of unethical behavior. As reported by ABC News,

'It won't make a dent if the conduct that led to the settlement is not addressed as part of health care reform,' said [Harvard Medical School faculty member Dr Jon]Abramson, who was the expert consultant for the plaintiff attorneys in the Bextra case in 2007.

'The real problem is this behavior is not isolated to Bextra nor Pfizer but in essence is the way the pharmaceutical industry expands the sales of its drugs,' Abramson said. 'Unless health care reform can address misrepresentations, withholding science and control claims made to consumers, Americans will continue to pay too much for health care that is not as effective and is expensive.'

PS - According to Bloomberg commentator Ann Woolner, one of the whistle-blowers in this case was a physician who noticed that a Pfizer drug representative was pushing him to use drugs off-label,

Pfizer Inc. sales folks had one tough customer in psychiatrist Stefan Kruszewski. He didn’t buy their pitch to prescribe the anti-psychotic drug Geodon to children, a use that hadn’t been approved by federal regulators.

Nor did he go for the so-called off-label uses they suggested, such as treating dementia in the elderly.

Kruszewski didn’t just say no. He went and checked the research and saw Geodon could have serious cardiac side effects not mentioned by the salesmen, who boasted of its relative safety, according to his lawyer, Brian Kenney. And he noticed that Pfizer was paying his peers to promote the drug to other psychiatrists.

But the worst for Pfizer was that Kruszewski didn’t keep it to himself. He found a lawyer, Kenney, who specializes in whistleblower cases, and they took what they had to the government.

So to all you physicians out there, this shows that you can succesfully blow the whistle on unethical practices by health care organizations. And you may even make some money doing so. Apparently several of the whistle-blowers in this case will get sizable payments under the US False Claims Act.

ADDENDUM (8 September, 2009) - See also comments by Alison Bass on the Alison Bass Blog, and by Dr Howard Brody on the Hooked: Medicine, Ethics and Pharma blog.

Post Title → Pfour Legal Settlements for Pfizer - Why is the Company "Recidivist?"

Yet More Investigations of UMDNJ

We have frequently discussed the plight of the University of Medicine and Dentistry of New Jersey (UMDNJ), the largest health care university in the US. Facing indictment for federal crimes, the university operated under a deferred prosecution agreement and the supervision of a federal monitor from 2005 to 2007. We most recently blogged about UMDNJ here, and see links backward.

UMDNJ may no longer be under the monitor's supervision, ostensibly because of internal reforms of its management, but a recent story on NJ.com from the Newark Star-Ledger questioned the success of these reforms.

The state's medical university was overcharging the federal government by millions of dollars, even while under federal oversight for similar violations of the law, according to internal reports.

Those documents show administrators at the University of Medicine and Dentistry of New Jersey inflated medical expenditures by at least $21 million a year -- boosting Medicaid and Medicare reimbursement rates. The abuses were allowed to continue even after a consultant repeatedly warned them about the problem.

It is unclear how long the overbillings took place, but reports obtained by The Star-Ledger show they occurred as recently as last year, despite the fact the school was undergoing an administrative shake-up following earlier reports of widespread financial abuse. Those earlier abuses included the university's deliberate $4.5 million overbilling of Medicare, which was the spark that led to a 2005 federal investigation and the appointment of a federal monitor.

The new allegations raise questions about the impact and pace of reforms at UMDNJ and its University Hospital in Newark nearly a year after they emerged from the monitor's oversight.

U.S. Attorney Christopher Christie said he was troubled by the revelations. He said part of the reason his office agreed to end the federal oversight last year was the assurance by both the state and the university that there would be continuing efforts to resolve UMDNJ's long-standing internal problems.

As to the specific problems uncovered,

At issue were inflated rates paid to physicians on the UMDNJ faculty, as well as free support services -- such as office space and clerical help -- that the hospital provided to doctors in private medical practices. Those costs were submitted to federal officials to generate higher reimbursement levels than were warranted, according to the documents. The extra money was used to plug holes in the medical school's budget.

In addition, the final report by the federal monitor raised a series of issues:

Questions about the validity of the university's Medicare cost reports and possible violations of federal law -- as well as other allegations of financial abuses lodged by former medical school officials -- were also underscored by the federal monitor in a final report issued to UMDNJ administrators in December.

That confidential document, reviewed by the newspaper, raised red flags over charges of legal and ethical breaches that were to have been addressed by the university. The monitor, former federal judge Herbert J. Stern, said in the report that outside auditors were pressured to 'gloss over' findings that physicians were being paid more than market rates would dictate. As a result, the final report 'substantially understated problems which continue to exist.'

Among the monitor's other findings:

--Nurses working at the privately operated Robert Wood Johnson University Hospital in New Brunswick, another UMDNJ teaching affiliate, were on the university payroll -- and getting state benefits -- despite having no teaching responsibilities.

--On cost reports submitted to federal officials, UMDNJ improperly included the services of nurse practitioners and physician assistants who were employed in private practices.

--University Hospital was allegedly double billing for emergency room services when patients were waiting in the ER for an available hospital bed.

--UMDNJ retained and paid for legal representation of faculty members and other employees in disputes "tangentially related" to the university and "outside the scope of employment."

The allegations in the Star-Ledger article lead to announcements that a NJ State Senate Committee will investigate the university (see article here), and the US attorney opened a new inquiry, involving subpoenas served on the institution, and for its president and executive vice president to appear before a grand jury (see article here).

Of course, these latest reports involve allegations, not facts proven in a court of law. Nonetheless, they do suggest that the management of the country's largest health care university has not been reformed all that much. A corporate culture of deception and sleaze still seems to envelop the institution's executive suites. One wonders whether contributing to its entrenchment are 1) the "anechoic effect," which still has confined discussion of UMDNJ's woes to the local media and a few blogs; and 2) the lack of negative consequences so far suffered by any individual UMDNJ managers. Although UMDNJ as an institution was "punished" by a deferred prosecution agreement, individual managers, not the institution as a whole, were responsible for any misbehavior. While individual managers escape punishment, I doubt that the many honest people who work at UMDNJ can escape demoralization, and that ultimately it is the students and patients who will suffer.

Post Title → Yet More Investigations of UMDNJ

Amerigroup Settles

Another addition to the cavalcade of settlements, from the Virginian-Pilot,

Amerigroup Corp., which faced $334 million of damage awards and court-imposed penalties from a Medicaid fraud suit in Chicago, said Tuesday that it will pay the U.S. government and state of Illinois $225 million to settle the civil case.

As part of an agreement struck with federal and state agencies, the Virginia Beach-based health insurer said it also will pay $9 million in legal fees, but it will not admit any wrongdoing.

However, Amerigroup said it also will enter into a corporate-integrity agreement with the inspector general of the Department of Health and Human Services, the federal agency that provides part of the funding for state Medicaid programs.

The suit's plaintiffs - a former Amerigroup employee, the state of Illinois and the federal government - said in federal court in Chicago that Amerigroup and its Chicago-area health care plan defrauded state and federal agencies by discouraging pregnant women and individuals with special needs from enrolling.

During a trial in October 2006, the jury found in favor of the plaintiffs and awarded damages of $48 million. That was tripled to $144 million because the suit had been filed under state and federal 'whistle blower' statutes, which required that any damages be trebled. The judge also imposed $190 million of fraud-related penalties on the company.

We first posted about the jury's finding against Amerigroup here. At that time it was reported that "jurors saw a videotape in which one executive said he always sought out 'the healthies' when signing up patients for the HMO. Jurors also saw a number of e-mails in which company officials spoke positively about limiting the number of pregnant women enrolled."

A health insurer who tried to only insure "the healthies" defeats the purpose, doesn't it?

This case adds to the impression that many leaders of health care organizations put short-term financial gains ahead of honesty and patient welfare. Furthermore, what negative incentives for such practices currently exist do not seem to deter them. After all, a fine or settlement paid years later can just be written off as a cost of doing business. Furthermore, although such a payment may have a (minimal) effect on the company's bottom line, it has no real effect on the people whose decisions and actions lead to the problem.

A physician who does something unethical can lose his or her license and practice. An executive of a health care company who does something unethical usually suffers no penalty. In my humble opinion, one solution would be to require state licenses for executives of insurance companies and managed care organizations, as well as other health care organizations whose actions affect the public health and safety (e.g., pharmaceutical, biotechnology and device companies; hospitals, hospital systems, and academic medical centers; medical schools; etc). Such licenses could be challenged, and could be lost, given due process, for findings of unethical conduct. That might provide sufficient negative incentives to reduce the epidemic of unethical behavior by health care organizational leaders.

Post Title → Amerigroup Settles