We started posting about Boston Scientific's travails in 2005, starting with allegations that Guidant, which is now a Boston Scientific subsidiary, hid information about defects in the implantable cardiac defibrillators (ICDs) the company manufactured. As we noted in early 2005 here, Guidant executives allegedly knew that ICDs made from 2000-2002 were at risk for short-circuiting and failing, thus making them unable to deliver potentially life saving electrical shocks meant to prevent cardiac arrests, but the company only revealed the problem in 2005. By failing to notify physicians and the public, Guidant executives let expensive and profitable, but potentially useless devices to continue to be implanted, potentially increasing the risk of sudden death for the patients who received them. Then here we noted reports that Guidant continued to ship failure-prone devices even after it had designed and started to manufacture new ICDs that were supposed to be less likely to fail. By June, 2005 we posted that Guidant had recalled thousands of ICDs, including models that were previously not identified as likely to fail. Later that year, the case rated an article by Robert Steinbrook in the New England Journal of Medicine. Towards the end of 2005, we noted that Eliot Spitzer had sued Guidant for fraud. At the end of the year, more information appeared, suggesting that Guidant knew the ICDs were flawed, but continued to sell them. Still more appeared early in 2006. Then the business media became interested in the bidding war between Johnson and Johnson and Boston Scientific for Guidant, provoking a bit more interest in the tale of the suppression of data about the flawed ICDs.
Then all was quiet until 2009, when Guidant, now a Boston Scientific subsidiary, pleaded guilty to two criminal misdemeanor charges that it failed to properly notify the FDA about problems with its ICDs (see post here). Later, the Guidant subsidiary of Boston Scientific settled charges that it gave doctors kickbacks as part of a "seeding study" to use its devices. At that time, it came to light that Boston Scientific had made another settlement, in 2007, of civil lawsuits alleging that the company hid problems with its products (see post here).
More details about this guilty plea have just been reported. As noted by the Minneapolis Star-Tribune,
A federal judge on Monday delayed a decision on whether to accept a $296 million plea agreement between the U.S. Justice Department and Boston Scientific Corp.'s Guidant subsidiary, which was charged with concealing critical safety information involving some of its top-selling heart devices.
If approved, the criminal penalty would rank as the largest ever in medical technology for a company that violated the federal Food, Drug and Cosmetic Act. But lawyers representing victims implanted with the potentially faulty devices threw a wrench into what was expected to be a routine hearing by demanding a piece of the settlement.
It appears that this settlement would not do any specific good for patients who claim to have been harmed by being implanted with a device that the manufacturer knew at the time to be faulty.
Also, the Star-Tribune noted:
Boston Scientific bought Guidant Corp., whose cardiac rhythm division is based in Arden Hills, for $27 billion in 2006. Though troubled, the division that makes pacemakers and defibrillators reported $2.6 billion in sales last year and still employs 2,000 people locally.
Thus, the financial penalty to be paid by Boston Scientific only would amount to little over ten percent of the yearly sales generated by the division which failed to disclose the faulty devices.
Adding to the sense that Boston Scientific and its leadership will feel little pain from the "largest criminal penalty ever assessed against a medical device company" (see this AP report) was this op-ed in the Boston Globe. It summarized just how richly the former CEO of Boston Scientific, Jim Tobin, who presided over the acquisition of Guidant and thus became responsible for its ethical lapses, and the current CEO, Ray Elliott have been compensated, in contrast to this supposedly large penalty. Re Tobin:
Tobin came to Boston Scientific in 1999 with similar instructions to clean up somebody else’s mess. He had to close facilities, ward off competitors, and, yes, settle patent lawsuits even back then. His carrot: A million stock options, a big deal in those days.
Tobin did fix some problems, and he brought the company’s new drug-eluting stent to market. Boston Scientific shares climbed, and he made about $39 million on options over the years. But Tobin also collected problems, the ones now in Elliott’s lap, and Boston Scientific shares fell again.
So here’s what the board did in February last year: It awarded Tobin 2 million more stock options, just a few months before announcing his retirement.
Adjusting for a stock split, the second option grant is the same size as what he got upon arrival.
And re Elliott:
Elliott, the man named as CEO of Boston Scientific Corp. last summer, became one of the best-paid chief executives in America in 2009. Separate national surveys published in the past week by The Wall Street Journal and The New York Times, although incomplete, come up with just one or two large-company CEOs with compensation packages that could outdo Elliott’s $33.5 million payday.
And see also this Health Care Renewal post.
TheBoston Globe editorialist asked "so what exactly was the point of the second award [to Tobin]?" Perhaps this question should be directed to the Boston Scientific board who approved it, and also approved Elliott's outsize pay package.
The current board includes two co-founders of the company and the current CEO, two retired politicians, a few others with whom I am not familiar, but also two academics who may be quite familiar to Health Care Renewal readers.
Recalling that Boston Scientific tried to plead guilty to charges of "making false statements ... to the FDA," and "failing to promptly notify regulators," it is striking that both these academics have had issues with transparency and free speech. We just posted about the repeated failure of Prof Uwe Reinhardt to acknowledge the conflict of interests generated by his numerous memberships in the boards of health care companies, including Boston Scientific, when writing about health policy issues. We have previously posted about the the conflicts of Marye Anne Fox, the Chancellor of the University of California - San Diego and hence leader of its medical school and academic medical center. Chancellor Fox has just been criticized by FIRE (the Foundation for Individual Rights in Education) for allowing the silencing of a student publication and television station which had published or broadcast opinions that apparently offended university leaders.
So who in this sorry tale will stand up for quality care of patients? The US Department of Justice is to be commended for pursuing deception by a large medical device company, but apparently could not bring itself to request a punishment for unethical practices likely to even inconvenience those responsible for the bad behavior. The previous and current company CEOs have become quite rich without having to stand up for honesty, or patient safety. The board of directors who are supposed to take responsibility for the overall direction of the company seem to have been happy just to go along.
As I have said before, endlessly, 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. Relatively small fines imposed on large corporations pain workers on the line and stockholders while sparing the richly paid top hired management and the boards that will not reign them in.
Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.
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