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 prescribe a long-acting version of the drug diltiazam. This week, the plea was formalized, per Reuters,

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.

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 this).

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, summarized by the New York Times, is:

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.

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 an editorial in the Wall Street Journal,

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.'

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,

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.

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...

[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.'

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 Pleads Guilty

As reported by by Fortune (via CNNMoney.com):

The big Canadian drug company [Biovail Pharmaceuticals] agreed Friday to plead guilty to U.S. kickback and conspiracy charges. The decision, which closes out a federal investigation of the company's unusual actions in support of a 2003 drug launch, means Biovail (BVF) and a New Jersey-based subsidiary will pay a $24.6 million fine to avoid a court case that could have cost them future business with federal agencies.

The marketing program in question - Proving Cardizem LA through Clinical Experience, or PLACE - aimed to build physician awareness of Biovail's 2003 launch of a crucial product, the long-acting formulation of heart drug Cardizem. Skeptical hedge funds and research outfits charged that by paying doctors up to $1,000 for prescribing the drug for up to 15 patients, Biovail's program amounted to little more than bribery.

Note that, as reported by Bloomberg, the payments were meant to be for "research,"

Biovail's plan [was] to offer them $1,000 to write 15 prescriptions for Cardizem LA, then complete a report on each patient.

However, as Fortune's article noted,

Biovail, the U.S. attorney's office wrote in its press statement Friday, 'did not design or implement the PLACE program in a way calculated to provide new or meaningful scientific data about whether Cardizem L.A. worked better than other available drugs.' It added in settling charges against the company that the payments to doctors exceeded the 'reasonable fair market value' of the physicians' services.

Add this to our collection of grossly unethical financial interactions between health care organizations (in this case, a pharmaceutical company) and physicians. In this case, payments apparently meant to serve as inducements for physicians to prescribe a drug were prettied-up as research support.

Pharmaceutical, biotechnology, and device companies now spend vast amounts on payments to physicians. These include payments for "consulting," "honoraria" for speaking, "royalties" for use of intellectual property, and funding for "research." Rarely do the companies or physicians involved disclose the amounts paid, or what the physicians did in return for these payments. One can only wonder how many other such payments are really for physicians' prescribing particular products, or helping to market these products. Only full disclosure of all payments made to physicians, other than fees for clinical services, could put such concerns to rest.

I would implore my fellow physicians who take payments for "consulting," "honoraria," "royalties," and "research" support to fully disclose these patients, their amounts, and what the physicians have done for them. If such disclosures might seem embarrassing, then the affected physicians should consider whether they should be taking such payments at all. Similarly, the organizations making such payments ought to fully disclose the people getting them, the amounts, and the reasons for the payments. Again, if such disclosures seem embarrassing, then the companies should consider whether they should be making such payments at all.

Physicians rightly often complain the they are being deprofessionalized. Being professional involves subscribing to and upholding a clear code of ethics. A major element of physicians' ethical codes is putting the interests of individual patients first. Taking payments to prescribe particular products, rather than prescribing for individual patients those drugs which are most likely to help, and least likely to hurt those patients, appears to violate this prime ethical directive. Physicians deprofessionalize themselves when they take payments or gifts in return for prescribing specific products. If we do not want to be deprofessionalized, we must not take actions that deprofessionalize ourselves.