healthy4u: Biovail

Last year, we <a href="http://hcrenewal.blogspot.com/2008/05/biovail-pleads-guilty.html">posted</a> about the guilty plea by the US arm of the Canadian firm Biovail to charges that it paid physicians kickbacks to prescribe a long-acting version of the drug diltiazam. This week, the plea was formalized, <a href="http://www.reuters.com/article/rbssHealthcareNews/idUSN1452312520090914">per Reuters</a>, <blockquote> A U.S. unit of Canadian drugmaker Biovail Corp (BVF.TO) has pleaded guilty to conspiracy and kickback charges, ending a case over its Cardizem hypertension drug, the U.S. Justice Department said on Monday. Prosecutors said Biovail has been sentenced to pay $22.2 million in fines, formalizing an agreement reached last year. It also agreed to pay $2.4 million to settle civil claims. Both involved charges it improperly paid doctors and other prescribers up to $1,000 to recommend Cardizem. </blockquote> When we originally posted about this case, we focused on the unprofessional behavior of the physicians who accepted the payments apparently in turn for prescribing. However, this is also yet another in a string of cases in which charges of unethical behavior by a large health care organization (a drug company this time) are settled by the company paying a fine, but not by any penalties accruing to any people at the company who authorized, ordered, or implemented the unethical actions. We have written about many such cases (see <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">this</a>). Also this week, a US judge addressed another proposed legal settlement of an important parallel case in the world of finance, and how he ruled suggests what needs to be done to truly discourage unethical behavior by health care organizations. The background, <a href="http://www.nytimes.com/2009/09/15/business/15bank.html">summarized by the New York Times</a>, is: <blockquote> Giving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff issued a scathing ruling on one of the watershed moments of the financial crisis: the star-crossed takeover of Merrill Lynch by the now-struggling Bank of America. Judge Rakoff refused to approve a $33 million deal that would have settled a lawsuit filed by the Securities and Exchange Commission against the Bank of America. The lawsuit alleged that the bank failed to adequately disclose the bonuses that were paid by Merrill before the merger, which was completed in January at regulators’ behest as Merrill foundered. </blockquote> Now consider some of the Judge's main points, and how they might apply to the many settlements of cases of unethical behavior of health care organizations. Per <a href="http://online.wsj.com/article/SB10001424052970203917304574413242609077958.html">an editorial in the Wall Street Journal</a>, <blockquote> Judge Rakoff was having none of it. In a 12-page opinion, he tore into the SEC for ignoring its own guidelines and penalizing shareholders rather than the individuals who supposedly acted improperly. The settlement 'does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct.' </blockquote> Note that the settlement of nearly every health care case involved a payment by the organization, but none by the people who authorized, ordered, or implemented the unethical behavior in questions. In those cases involving public for-profit corporations, just like the current one, the shareholders were the ones footing the bill. In most such cases, the shareholders were also ultimately victims in that it was their money that ultimately paid for the bad behavior, just like in this case. So in those cases the shareholders, who were victims of the companies' managers' bad behavior, were penalized while the managers got off Scot free. (In cases involving not-for-profit organizations, in parallel, one could argue that it was the organizations' line employees and other constituencies who were both the payers of the penalties and the victims of the conduct.) Also, <blockquote> As for the SEC's argument that this shareholder punishment will result in better management, the judge called it 'absurd.' The judge also had little sympathy for the SEC's argument that it would be too difficult to pursue executives, since they had been guided by lawyers. 'If that is the case, why are the penalties not then sought from the lawyers? And why, in any event, does that justify imposing penalties on the victims of the lie, shareholders?' he asked. </blockquote> In most settlements of parallel cases in health care, the relevant government agency usually suggested that the settlement will lead to better behavior by the organization. As we have noted before, the take-away lessons for managers was more likely that bad behavior will at worst lead to increased costs of doing business, but no penalties to the people involved. Such lessons would likely reinforce managers' decisions to behave unethically when doing so would benefit the managers themselves in the short run. In parallel cases in health care, the relevant government agency has rarely explained why it did not pursue the managers who authorized or ordered the behavior, or the lawyers that advised them, for that matter. The current case suggests that there was no logical rationale for failing to hold the people responsible accountable, except... <blockquote> [The judge said] broadly the deal 'suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense, not only of the shareholders, but also of the truth.' </blockquote> And it is likely in health care that previous settlements arose out of such a cynical relationship. The government agency got to claim it was exposing wrongdoing. The executives of the offending organization got to claim they were coerced into an onerous settlement by overzealous regulators. The main casualty was the truth. Again, 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. 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.

Biovail Settles, and a Judge Explains Why Settlements in Which Only the Organization Pays a Penalty Do Not Deter Bad Behavior

Last year, we posted about the guilty plea by the US arm of the Canadian firm Biovail to charges that it paid physicians kickbacks to presc...

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