Ghosts in the Criminal Machine - How a Drug Company Can Plead Guilty to Federal Fraud, Yet No One is Held Responsible

We have often discussed how leaders of health care organizations have become increasingly unaccountable for their actions.  A recent, slightly obscure story shows how a corporate admission of guilt to a felony can be used to prevent anyone, including anyone in corporate management, from being held responsible for that fraud.<br /><br /><b>Basics of the Settlement</b><br /><br />The case was that of ISTA Pharmaceuticals.  The basics appeared in brief wire service articles, like <a href="http://www.foxbusiness.com/industries/2013/05/24/bausch-lomb-ista-admits-to-kickbacks/">this one</a> from Rueters (via Fox News):<br /><br /><br /><blockquote class="tr_bq"><i>Ista Pharmaceuticals pleaded guilty on Friday to charges it used kickbacks and improper marketing to boost sales of a drug </i>meant to treat eye pain and agreed to<i> pay $33.5 million to settle criminal and civil liability</i>, the U.S. Department of Justice said.<br /><br /> The unit of eye care company Bausch & Lomb <i>pleaded guilty to conspiracy to offer kickbacks to induce physicians to prescribe Xibrom,</i> a drug meant to treat pain after cataract surgery, and <i>conspiracy to promote that drug for unapproved uses</i>, including after Lasik and glaucoma surgeries.<br /><br /> Ista agreed as part of a criminal settlement to a $16.63 million fine and an $1.85 million asset forfeiture. It also agreed to a $15 million civil settlement to resolve allegations that its marketing of Xibrom caused false claims to be submitted to government health care programs.</blockquote><br /><b>Kickbacks Disguised as Honoraria and Consulting Fees </b><br /><br />Note that unlike many such legal settlements involving large health care organizations, this one involved admissions of guilt to felonious criminal offenses.  The severity of the charges apparently arose out of the egregious conduct of company executives.  Colorful details were <a href="http://www.buffalonews.com/apps/pbcs.dll/article?AID=/20130524/CITYANDREGION/130529545/1005">supplied</a> by the Buffalo (NY) News:<br /><br /><blockquote class="tr_bq">ISTA, which is based in California, <i>admitted using kickbacks to doctors and an illegal marketing campaign </i>as part of an elaborate scheme to increase its sales of Xibrom.<br /><br />The scheme, outlined in detail in newly released court papers, ranged from company-provided instruction sheets for doctors to continuing medical education programs to promote the drug.<br /><br />In many cases, <i>ISTA employees were told not to leave printed materials behind in doctors’ offices or to keep records of their meetings with doctors in order to avoid detection </i>by others.<br /><br />The company went so far as to <i>offer speaking engagements and consulting appearances to doctors in hopes that they might use Xibrom</i> for non-authorized treatments.<br /><br />Doctors can legally prescribe drugs for non-FDA approved treatments, but drugmakers are prohibited from promoting their products for those uses.<br /><br />'Essentially <i>they entered into consulting arrangements to induce physicians to prescribe their drug</i>,' said Jeffrey I. Steger, a lawyer in the Consumer Protection Branch of the U.S. Department of Justice.<br /><br />When [US District Judge Richard J] Arcara asked if money was the doctors’ motivation, Steger said yes.<br /><br />'Thousands of dollars,' he told the judge. </blockquote><br />So here we have a company admitting that it bribed doctors to prescribe its drug, and its techniques of administering bribes included paying the doctors honoraria to give talks, and paying the doctors as consultants.  As an aside, note that many defenders of "collaboration" among doctors and industry sign the praises of doctors "consulting" for industry, and often see nothing wrong with industry paying doctors for "educational" speeches.  Yet here is more evidence that such paid talks and consulting assignments may be nothing more than marketing, and at times are merely disguised bribery. <br /><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><b>An Apparently Tough Penalty</b></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">An unusual feature of this settlement was that (per Reuters):</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote class="tr_bq">As part of the settlement, <i>Ista will be barred from participating in Medicare and Medicaid,</i>...</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div></div><br /><br />That would appear to be the death knell for the company, as reported by Reuters, <br /><br /><blockquote class="tr_bq">Bausch & Lomb, which is based in Rochester, New York, said it was pleased to settle the matter, which involved conduct between January 2006 and March 2011, and that it knew of the government probe well before it purchased Ista.<br /><br /> That purchase closed in June 2012 and Bausch and Lomb <i>plans to wind down the Ista corporate entity by year end.</i></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div>So Bausch and Lomb bought a company that turned out to be valueless?  But wait,...  there's a trick. <br /><br />As <a href="http://www.fiercepharma.com/story/ista-excluded-medicare-335m-label-settlement/2013-05-28">detailed</a> in FiercePharma,<br /><br /><blockquote class="tr_bq"> ISTA will be barred from doing business with Medicare, Medicaid, et al, for 15 years. Luckily for Bausch + Lomb, however, it bought ISTA in June 2012,  late enough in the game to actually escape the ramifications of exclusion. <i>The exclusion won't begin until 6 months after the settlement date, giving Bausch + Lomb time to transfer ISTA's products out of that subsidiary and shift the drugs over to the Bausch + Lomb label.</i></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /><b>A Crime Committed by... No One?</b></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">So Bausch and Lomb gets ISTA's drugs, and essentially can resolve the company's felony convictions by relatively small fines, and through management sleight of hand, can finesse ISTA's disbarment from federal programs..  This will occur despite admissions that someone within ISTA, presumably within ISTA management, perhaps high up in ISTA management, per FiercePharma, </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote class="tr_bq"><i>instructed reps to avoid leaving a paper trail of their off-label discussions with doctors. </i>Prosecutors had enough evidence of this to <i>persuade ISTA to plead guilty to a felony fraud charge.</i> 'These instructions were given in order to avoid having their conduct relating to unapproved new uses being detected by others, the Justice Department said. 'ISTA agreed that this conduct represented an intent to defraud under the law.'</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />So felony fraud was committed, but no person apparently committed it.  It was as if a ghost committed the crime.</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"> </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Not only was a crime committed, but apparently by nobody, the corporation within which the crime was committed also becomes obscure.  ISTA became responsible, but by being bought out by Bausch and Lomb, the more severe penalty directed against ISTA will be meaningless.  </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"> </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Should Bausch and Lomb be responsible?  Of course, they claim they should not.  As <a href="http://www.bloomberg.com/news/2013-05-24/bausch-lomb-unit-pays-33-5-million-in-misbranding-case.html">reporte</a>d by Bloomberg, </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"> </div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"> Rochester, New York-based Bausch & Lomb said the actions occurred 'well before' it acquired Ista in 2012. </div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote><br />'Bausch & Lomb is committed to earning trust in everything that we do and is pleased to have resolved this pre-acquisition issue,' Bob Bailey, a Bausch & Lomb spokesman, said in a statement. </blockquote><br />In fact, The Hill<a href="http://thehill.com/blogs/regwatch/healthcare/301949-drug-company-pleads-guilty-to-felony-kickback-scheme-pays-335m"> reported</a> that the bad behavior took place from 2005 to 2010: <br /><br />But consider that while ISTA recently became part of Bausch and Lomb, since 2007, Bausch and Lomb has been wholly owned by private equity firm Warburg Pincus.  In fact, as we <a href="http://hcrenewal.blogspot.com/2009/06/was-private-equity-takeover-of-bausch.html">discussed</a> in in 2009, some people suspected that this maneuver would have allowed Baush and Lomb to settle multiple suits alleging that its products were faulty and dangerous out of the public eye.  So while ISTA is now really Bausch and Lomb is now really Warburg Pincus, no one in the management of ISTA, Bausch and Lomb, or Warburg Pincus apparently will be held responsible for criminal fraud and kickbacks to doctors, even though guilty pleas for these felonies have been made.  So somehow we have admissions that crimes were committed, crimes that compromised the integrity of doctors, and exposed patients to needless side effects, yet these crimes were apparently committed by ... nobody, by a ghost, and even the machine that ghost was in - was it ISTA, Bausch and Lomb, or Warburg Pincus? - becomes a mystery.  Where is Sherlock Holmes when we need him most?.<br /><br /><b>Summary</b><br /><br />This case thus becomes a really striking example of the impunity of health care corporate managers.  They can commit crimes, even felonies, yet the company, but no human beings, is held responsible.  But the company being a company, it cannot go to jail.  And through the magic of obfuscatory corporate take-overs, which company is guilty is not even apparent. <br /><br />As we have said ad infinitum, <br /><br /> 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. </div></div>

Ghosts in the Criminal Machine - How a Drug Company Can Plead Guilty to Federal Fraud, Yet No One is Held Responsible

We have often discussed how leaders of health care organizations have become increasingly unaccountable for their actions.  A recent, slightly obscure story shows how a corporate admission of guilt to…

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Was a Private Equity Takeover of Bausch and Lomb Meant to Conceal Its Legal Settlements of Cases of Eye Infections?

This week, the Associated Press <a href="http://www.google.com/hostednews/ap/article/ALeqM5jz3TMuH6bomvVkjjZcYoABBjQYGgD98HAO4G1">reported</a> on yet another way health care corporations may keep information that reflects poorly on their products out of public view. The story involved fungal eye infections that particularly afflicted users of a specific contact lens cleaning solution:<br /><blockquote><br /><em>More than 700 lens wearers in the United States and Asia say they were exposed to a potentially blinding infection known as Fusarium keratitis while using ReNu with MoistureLoc, a new-formula multipurpose solution for cleaning, storing and moistening soft contact lenses</em>.<br /><br />Sometimes, the damage was irreparable. Seven people in Florida, Maryland, New York, Oregon, Tennessee and West Virginia had to have an eye removed. At least 60 more Americans needed vision-saving corneal transplants.<br /><br /><em>The U.S. Centers for Disease Control and Prevention confirmed 180 cases in 35 states from June 2005 through September 2006</em>, when the agency's dedicated surveillance stopped, according to Dr. Benjamin Park, a CDC epidemiologist. CDC continued to hear of sporadic, unconfirmed cases in the months after MoistureLoc was withdrawn, Park said.<br /><br />'Surveillance usually captures the tip of the iceberg and sometimes it captures a larger tip than other times,' Park said in an interview.<br /><br />Among out-of-court settlements reached in May was a potential bellwether case brought by Andrea Martin, a Broadway actress and comedienne whose eye was scarred. In Colorado, a corneal transplant ended a race-car driver's career. In Baltimore, a chimney-sweep business owner who lost an eye got hooked on painkillers.<br /><br />Leading eye doctors and government scientists concluded that <em>MoistureLoc, launched in 2004 with novel disinfectant and moisturizing ingredients, was the only lens solution that contributed to the outbreak</em>. Yet the mechanics of how it caused the problem are still not fully clear.<br /></blockquote><br /><br />AP alleged that Bausch and Lomb kept the cases out of public view by using a previously unknown (at least to me) strategy:<br /><blockquote><br /><em>Contact lens maker Bausch & Lomb Inc. had an overriding reason for going private in 2007: It wanted to handle a devastating recall of its flagship lens cleaner, its chief executive said, 'without a lot of outside distraction.'<br /></em><br />Over the past year, <em>away from the glare of public scrutiny</em>, the optical products company has quietly settled nearly 600 fungal-infection lawsuits — with dozens more individual claims yet to be resolved. The cost so far: Upward of $250 million.<br /><br />With some fungal lawsuits still unresolved, the prospect of Bausch & Lomb's health care nightmare being aired in court has not entirely faded — which heartens some lawyers and doctors.<br /><br /><em><strong>'The truth has been very carefully buried,</strong> and it appears to have been buried going back to the beginnings of the outbreak,'</em> said Dr. Arthur Epstein, who was chairman of the American Optometric Association's contact lens and cornea section during the highly publicized crisis.<br /><br />'All settlements were predicated on silence about the clinical findings and blame and so forth. My hope was that what actually happened would become part of public record in a courtroom. That way, we'd be able to learn from it and move on and make sure it never happened again.'<br /><br />When Bausch & Lomb was acquired by private equity firm Warburg Pincus for $3.67 billion in October 2007, <em>Chief Executive Ronald Zarrella said the deal would allow the company 'to pursue the growth path we were on ... without a lot of outside distraction.'</em>Zarrella retired last year.<br /><br />'hey can do all this out of the public eye — guys like me aren't sitting there scrutinizing the financial impact of every single settlement,'said analyst Jeff Johnson of Robert W. Baird & Co. in Milwaukee. 'you can completely focus on your brand and on doing what's right by the patient.'</blockquote><br /><br />So, if I understand this correctly, after Warburg Pincus took the company private, it was no longer required to file certain reports with the US Securities and Exchange Commission (SEC), including reports that would have had to acknowledge the multiple settlements the company made of cases alleging adverse effects of its contact lens solution. What is striking is the allegation by the AP that "taking the company" private was a strategy meant to conceal the settlements of these cases, (rather than a strategy implemented to fulfill other aims, which had the side effect of diminishing reporting of these cases' results.)<br /><br />Again, I am hardly an expert, but relatively opaque private equity firms like Warburg Pincus seem to have become increasingly influential in the US economy, and to have an increasing role in health care. In 2007, we had <a href="http://hcrenewal.blogspot.com/2007/09/web-of-deception-ensnares-us-nursing.html">posted</a> how private equity firms running nursing homes, including Warburg Pincus, seemed to contribute to the opacity of their operations. More recently, we <a href="http://hcrenewal.blogspot.com/2009/04/hedge-fund-u.html">posted</a> about how leaders of private equity, and of other kinds of firms in the finance arena, seem to also increasingly be leaders to which medical schools report.<br /><br />One final note... A quick tour through the Warburg Pincus website reveals how involved the firm is in health care. The firm <a href="http://www.warburgpincus.com/industries/healthcare/Default.aspx">claimed</a> that as a "direct equity investor in healthcare for more than 30 years, Warburg Pincus has invested more than $4 billion in approximately 120 healthcare companies." Furthermore, the firm seems quite intertwined with the leadership of academic medicine. It has a Life Sciences Advisory Board, of which three of four members are current leaders in academic medicine. The most prominent, Dr Michael Rosenblatt, Dean of the Tufts University School of Medicine, did not disclose this relationship in several versions of his biography published on the university web-site. (See the Tufts administration version <a href="http://provost.tufts.edu/1174149600661/Provost-Page-prov2w_1174149601058.html">here</a>, and the Tufts Medical Center version <a href="http://www.tuftsmedicalcenter.org/OurServices/EndocrinologyandDiabetes/MichaelRosenblattMD">here</a>.)<br /><br />Oh, what a tangled web we have weaved in health care, a web that continually frustrates transparency and makes it hard to figure out who was responsible for what when things go wrong.

Was a Private Equity Takeover of Bausch and Lomb Meant to Conceal Its Legal Settlements of Cases of Eye Infections?

This week, the Associated Press reported on yet another way health care corporations may keep information that reflects poorly on their products out of public view. The story involved fungal eye infec…

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