2 Legal Settlements + 1 Corporate Integrity Agreement = $130 Million Retirement Package?

Omnicare's Trail of Legal Settlements

Last year, we discussed a $98 million settlement made by Omnicare, US based corporation that manages pharmacy-benefits, of allegations that it received kickbacks from generic drug manufacturers for buying and recommending their drugs.  Omnicare had previously submitted to a corporate integrity agreement in 2006, and paid $102 million to settle allegations it defrauded Medicaid.  At the time, we noted that this was yet another of the many cases in which the organization alleged to be involved in wrong-doing paid a fine, but no one who authorized, directed, or implemented the bad behavior was subject to any negative consequences.

So last week, Cincinnati.com ran a story on the retirement of the CEO who presided over Omnicare during the time of the alleged misconduct. 

Before reading further, would anyone care to guess whether the company's previous bad behavior would negatively impact his fortunes?

Contrasted with the Size of the CEO's Retirement Package

No exactamente:

As Omnicare Inc.'s new leadership begins to reshape its corporate culture - one that had included generous pay for senior executives - the Fortune 500 firm's exiting CEO stands to collect one of the largest payouts landed by a U.S. corporate executive in recent history.

Former president and CEO Joel Gemunder, who surprised analysts and investors when he retired on July 31, is in line to receive more than $130 million in severance, pension and departing payouts.

At 71, Gemunder had led Omnicare Inc., the nation's largest provider of pharmaceuticals for the elderly, for nearly 30 years.

On his retirement, Gemunder was up for a lump sum pension payment of more than $91 million. That's in addition to a monthly pension payment of $1,719 and roughly $5.38 million from a deferred compensation plan.

Gemunder also will receive $16.2 million in cash severance payable through next July. His 2.7 million in stock options and more than 705,100 shares of restricted common stock also became fully vested on his retirement. Collectively, the shares were worth more than $21.7 million, according to the company's most recent proxy.

To recapitulate so far: the company had to make two settlements of charges of kickbacks and fraud, totalling about $200 million, and accept a corporate integrity agreement. The CEO on whose watch this occurred left the company with a $130 million retirement package.

Can we spell "impunity?"

Protest from the Main-Stream Media

But this case was different from many of the legal settlements that we have chronicled in the past. In those previous cases, we noted how corporate bad behavior cost the organization as a whole, and hence collectively cost the stock-owners, the employees, and the customers/ clients/ patients involved, but not the leaders who authorized and directed the bad behavior, nor the particular people who implemented it. Hardly anyone else, however, took notice.

However, after Mr Gemunder's obese retirement package was made public, there was actually outrage in the opinion section of the Wall Street Journal:

Health-care costs, the national debt and taxes are all going up, and Joel Gemunder is one reason why.

Until Mr. Gemunder's abrupt retirement was announced on Monday, he was CEO of Covington, Ky.-based Omnicare, the nation's largest dispenser of pharmaceuticals to nursing homes.

Omnicare gets most of its revenue from Medicare, Medicaid and other companies sucking on these same government feeding tubes. Omnicare also lives up to its name, serving 1.4 million beds in 47 states.

Mr. Gemunder, 71, had been in charge since 1981, but now he's split with one of the largest lump-sum pension payouts in history, The Wall Street Journal reported. He's getting a $91 million pension payout, plus severance, vesting of restricted stock and other goodies that bring his final payday to at least $130 million. And that's on top of the $14 million he bagged last year.

As CEO, Mr. Gemunder touted 'cost reduction initiatives,' including salary cuts for employees, but these initiatives didn't apply to himself.

And what did the shareholders get for their money? Omnicare shares took a tumble last week after the company reported a shocking drop in the number of prescriptions it fills.

Omnicare stock peaked in March 2006 at more than $61, but now trades under $23. That's a drop of more than 60% -- versus a roughly 11% decline in the S&P 500 during the same period.

And what did the taxpayers and customers get? Omnicare has long been plagued by huge litigation costs amid allegations of kickback and billing schemes.

It's nice to have company. And it's very nice that the issue of the impunity enjoyed by leaders of top health care organizations has made it into the main-stream media. Now it is time to do something about it.

Summary

Let me say it again:  The Omnicare settlement coupled with its CEO's outlandish retirement package fit right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: 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.

Postscript: A Conflicted Board Member?

The Cincinati.com story described the bizarre process used to set the size of the Omnicare CEO's retirement package.

Just ahead of Gemunder on the big pension list is Thomas M. Ryan, president and CEO of CVS Caremark Corp. with $94.4 million at the end of 2009.

CVS posts annual sales in excess of $98 billion compared to Omnicare's $6.17 billion. Annual profit at CVS is $3.6 billion compared to $ 211 million at Omnicare.

Despite the sizable differences, CVS is among 40 companies whose CEOs pay is considered when Omnicare's executive compensation committee determines pay for its top executives, according to the firm's April proxy. The company's compensation committee, which declined comment for this story, is made up of three long-time directors Andrea R. Lindell, board chair John T. Crotty and Steven J. Heyer.

Other companies considered include New York-based Bristol-Myers Squibb Co. with $17.8 billion in sales; Dublin, Ohio-based Cardinal Health, Inc. with $99 billion in sales and New Jersey-based Medco Health Solutions, Inc. with $72 billion in sales.

'These companies are enormously bigger than you would expect for a comparative group' for Omnicare, Crystal said. 'It's the equivalent of the local ball team that's not in the major leagues using their comparative group as the New York Yankees.'

Note that one member of the compensation committee that used this absurd standard to set the CEO's compensation was one Andrea R Lindell. The above story did not identify her further, but as we noted last year, she "is also Dean of the College of Nursing at the University of Cincinnati. One would think that someone who thus boasts 'the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice' needs to keep a closer eye on the ethical aspects of her company's management. But as the New York Times just noted on the front-page of last Sunday's business section, as another blow to the anechoic effect, "Academics may be trained to ask tough questions in their own fields, but when confronted with tricky business issues far above their level of expertise they 'often become as meek as church mice'...." and hence are just the sort of directors that self-interested CEOs intent on lining their own pockets love. 

So this case becomes another reason to take seriously the increasingly frequent conflicts of interest generated when top leaders of non-profit health care organizations sit on boards of for-profit health care corporations.  These conflicts may not only distract the leaders from the mission of the non-profit organizations, but also distract them from their fiduciary duties to the stock-holders of the for-profit corporations. 

2 Legal Settlements + 1 Corporate Integrity Agreement = $130 Million Retirement Package?

Omnicare's Trail of Legal Settlements

Last year, we discussed a $98 million settlement made by Omnicare, US based corporation that manages pharmacy-benefits, of allegations that it received kickbacks from generic drug manufacturers for buying and recommending their drugs.  Omnicare had previously submitted to a corporate integrity agreement in 2006, and paid $102 million to settle allegations it defrauded Medicaid.  At the time, we noted that this was yet another of the many cases in which the organization alleged to be involved in wrong-doing paid a fine, but no one who authorized, directed, or implemented the bad behavior was subject to any negative consequences.

So last week, Cincinnati.com ran a story on the retirement of the CEO who presided over Omnicare during the time of the alleged misconduct. 

Before reading further, would anyone care to guess whether the company's previous bad behavior would negatively impact his fortunes?

Contrasted with the Size of the CEO's Retirement Package

No exactamente:

As Omnicare Inc.'s new leadership begins to reshape its corporate culture - one that had included generous pay for senior executives - the Fortune 500 firm's exiting CEO stands to collect one of the largest payouts landed by a U.S. corporate executive in recent history.

Former president and CEO Joel Gemunder, who surprised analysts and investors when he retired on July 31, is in line to receive more than $130 million in severance, pension and departing payouts.

At 71, Gemunder had led Omnicare Inc., the nation's largest provider of pharmaceuticals for the elderly, for nearly 30 years.

On his retirement, Gemunder was up for a lump sum pension payment of more than $91 million. That's in addition to a monthly pension payment of $1,719 and roughly $5.38 million from a deferred compensation plan.

Gemunder also will receive $16.2 million in cash severance payable through next July. His 2.7 million in stock options and more than 705,100 shares of restricted common stock also became fully vested on his retirement. Collectively, the shares were worth more than $21.7 million, according to the company's most recent proxy.

To recapitulate so far: the company had to make two settlements of charges of kickbacks and fraud, totalling about $200 million, and accept a corporate integrity agreement. The CEO on whose watch this occurred left the company with a $130 million retirement package.

Can we spell "impunity?"

Protest from the Main-Stream Media

But this case was different from many of the legal settlements that we have chronicled in the past. In those previous cases, we noted how corporate bad behavior cost the organization as a whole, and hence collectively cost the stock-owners, the employees, and the customers/ clients/ patients involved, but not the leaders who authorized and directed the bad behavior, nor the particular people who implemented it. Hardly anyone else, however, took notice.

However, after Mr Gemunder's obese retirement package was made public, there was actually outrage in the opinion section of the Wall Street Journal:

Health-care costs, the national debt and taxes are all going up, and Joel Gemunder is one reason why.

Until Mr. Gemunder's abrupt retirement was announced on Monday, he was CEO of Covington, Ky.-based Omnicare, the nation's largest dispenser of pharmaceuticals to nursing homes.

Omnicare gets most of its revenue from Medicare, Medicaid and other companies sucking on these same government feeding tubes. Omnicare also lives up to its name, serving 1.4 million beds in 47 states.

Mr. Gemunder, 71, had been in charge since 1981, but now he's split with one of the largest lump-sum pension payouts in history, The Wall Street Journal reported. He's getting a $91 million pension payout, plus severance, vesting of restricted stock and other goodies that bring his final payday to at least $130 million. And that's on top of the $14 million he bagged last year.

As CEO, Mr. Gemunder touted 'cost reduction initiatives,' including salary cuts for employees, but these initiatives didn't apply to himself.

And what did the shareholders get for their money? Omnicare shares took a tumble last week after the company reported a shocking drop in the number of prescriptions it fills.

Omnicare stock peaked in March 2006 at more than $61, but now trades under $23. That's a drop of more than 60% -- versus a roughly 11% decline in the S&P 500 during the same period.

And what did the taxpayers and customers get? Omnicare has long been plagued by huge litigation costs amid allegations of kickback and billing schemes.

It's nice to have company. And it's very nice that the issue of the impunity enjoyed by leaders of top health care organizations has made it into the main-stream media. Now it is time to do something about it.

Summary

Let me say it again:  The Omnicare settlement coupled with its CEO's outlandish retirement package fit right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: 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.

Postscript: A Conflicted Board Member?

The Cincinati.com story described the bizarre process used to set the size of the Omnicare CEO's retirement package.

Just ahead of Gemunder on the big pension list is Thomas M. Ryan, president and CEO of CVS Caremark Corp. with $94.4 million at the end of 2009.

CVS posts annual sales in excess of $98 billion compared to Omnicare's $6.17 billion. Annual profit at CVS is $3.6 billion compared to $ 211 million at Omnicare.

Despite the sizable differences, CVS is among 40 companies whose CEOs pay is considered when Omnicare's executive compensation committee determines pay for its top executives, according to the firm's April proxy. The company's compensation committee, which declined comment for this story, is made up of three long-time directors Andrea R. Lindell, board chair John T. Crotty and Steven J. Heyer.

Other companies considered include New York-based Bristol-Myers Squibb Co. with $17.8 billion in sales; Dublin, Ohio-based Cardinal Health, Inc. with $99 billion in sales and New Jersey-based Medco Health Solutions, Inc. with $72 billion in sales.

'These companies are enormously bigger than you would expect for a comparative group' for Omnicare, Crystal said. 'It's the equivalent of the local ball team that's not in the major leagues using their comparative group as the New York Yankees.'

Note that one member of the compensation committee that used this absurd standard to set the CEO's compensation was one Andrea R Lindell. The above story did not identify her further, but as we noted last year, she "is also Dean of the College of Nursing at the University of Cincinnati. One would think that someone who thus boasts 'the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice' needs to keep a closer eye on the ethical aspects of her company's management. But as the New York Times just noted on the front-page of last Sunday's business section, as another blow to the anechoic effect, "Academics may be trained to ask tough questions in their own fields, but when confronted with tricky business issues far above their level of expertise they 'often become as meek as church mice'...." and hence are just the sort of directors that self-interested CEOs intent on lining their own pockets love. 

So this case becomes another reason to take seriously the increasingly frequent conflicts of interest generated when top leaders of non-profit health care organizations sit on boards of for-profit health care corporations.  These conflicts may not only distract the leaders from the mission of the non-profit organizations, but also distract them from their fiduciary duties to the stock-holders of the for-profit corporations. 

Sacks Medical, KV Pharmaceutical Plead Guilty, Mariner Health Care, SavaSeniorCare Settle

The march of legal settlements and guilty pleas by health care organizations just keeps going.  The most recent participants were:

Sacks Medical Corp

The Pittsburgh Tribune-Review reported:

A Butler County drug company pleaded guilty in federal court in Pittsburgh to international money laundering and violating federal drug laws in an investigation that involved the now-defunct Monsour Medical Center Research Institute.

Sacks Medical Corp. of Evans City was fined $500,000 and ordered to forfeit an additional $500,00 by U.S. District Court Judge Gustave Diamond on Monday. The firm was placed on one year's probation.

The research institute was not charged in the investigation.

According to federal prosecutors, Sacks in 2004 obtained pharmaceutical drugs at discount prices, which were then resold to other drug wholesalers in violation of the Prescription Drug Marketing Act.

Sacks persuaded officials at the Monsour Medical Center in Jeannette to create the research institute, which was nothing more than a shell company, according to the charges.

The institute joined two group purchasing organizations and began buying large amounts of medical supplies that should have been designated only for the hospital's use and not resold, according to the charges.

Purchases were made from major drug companies, AmerisourceBergen of Valley Forge and McKesson Corp. San Francisco. Monsour then sold the medications to Millenia Hope Healthcare Inc., which was located at Monsour.

Millenia then sold the drugs directly to Sacks or to San Med Development Group, which is owned by Sacks, according to prosecutors.

Sacks supplied Monsour with the money to buy the discounted drugs. The company then tried to disguise the transaction by wiring the money to a Canadian bank, which in turn wired the money back to Monsour, according to the plea agreement.

The novel element here seems to be the charge of international money laundering.

KV Pharmaceutical

Bloomberg reported:

KV Pharmaceutical Co. agreed to pay a $25.8 million fine and forfeit $1.8 million to resolve a U.S. Justice Department investigation of its generic pharmaceutical marketing and distribution unit, which will cease operations.

That unit, Ethex Corp., will also enter a plea of guilty to criminal charges arising from its actions in 2008, according to a statement issued today by St. Louis-based KV. The agreement requires court approval, the company said.

Under the terms of the accord, Ethex will plead guilty to two felony counts stemming from its failure to make and submit to the U.S. Food and Drug Administration a report on its discovery of undistributed pills that 'failed to meet product specifications,' KV said separately in a filing today with the U.S. Securities and Exchange Commission.

Note that these first two cases both involved guilty pleas to criminal charges, felonies in the latter case.  Further note, however, that in the latter case, the felony pleas were made by a subsidiary of the corporation, which will then be dissolved, leaving the parent corporation intact.  Although in both cases organizations pleaded guilty to criminal charges, there were no reports that any individuals who worked for or were otherwise involved in these organizations pleaded guilty to any charges.
Mariner Health Care, SavaSeniorCare (and Omnicare)

Again, from a report by Bloomberg:

The U.S. reached a $14 million settlement with nursing home chains Mariner Health Care Inc. and SavaSeniorCare Administrative Services LLC over allegations of kickbacks from a supplier of drugs to nursing home patients.

The accord resolves claims that the companies and their principals, Leonard Grunstein, Murray Forman and Rubin Schron, solicited kickbacks from Omnicare Inc., the U.S. Justice Department said in an e-mailed statement.

The defendants conspired to have Omnicare pay $50 million in exchange for agreeing to use the supplier for 15 years, the government said last March in a complaint in Boston. The alleged kickback scheme involved Omnicare’s paying $40 million to buy a Mariner unit whose only assets were less than $3 million in accounts receivable, according to the complaint.

Note that we discussed another settlement involving Omnicare and kickback allegations here.  It appears, however, that Omnicare paid any additional penalty in this case, despite allegations that it provided the kickbacks.

Summary

Again, another week, another series of colorful legal settlements and/or guilty pleas and/or convictions involving health care organizations.  Again, although organizations settled or pleaded guilty, no individuals seemed to be held accountable for authorizing, directing, or implementing the actions that lead to these pleas and settlements.

So, here we go again ... To repeat, seemingly ad infinitum, these are just the latest in a now long parade of settlements and guilty pleas and criminal convictions, sometimes involving charges like bribery, fraud, or kickbacks,  that serve as reminders of poor behavior by myriad health care organizations. As we have previously noted, these settlements seem to have little deterrent effect on future bad behavior. (Note that many large health care organizations have settled or plead guilty in several major cases since we started commenting on such settlements.) Usually, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior. Until the people who approve, direct, and perform unethical or illegal acts pay some penalties, expect such acts to continue. I again suggest that to truly reform health care, we need rigorous regulation of health care organizations that has the power to deter unethical behavior that may risk patients' health.

Sacks Medical, KV Pharmaceutical Plead Guilty, Mariner Health Care, SavaSeniorCare Settle

The march of legal settlements and guilty pleas by health care organizations just keeps going.  The most recent participants were:

Sacks Medical Corp

The Pittsburgh Tribune-Review reported:

A Butler County drug company pleaded guilty in federal court in Pittsburgh to international money laundering and violating federal drug laws in an investigation that involved the now-defunct Monsour Medical Center Research Institute.

Sacks Medical Corp. of Evans City was fined $500,000 and ordered to forfeit an additional $500,00 by U.S. District Court Judge Gustave Diamond on Monday. The firm was placed on one year's probation.

The research institute was not charged in the investigation.

According to federal prosecutors, Sacks in 2004 obtained pharmaceutical drugs at discount prices, which were then resold to other drug wholesalers in violation of the Prescription Drug Marketing Act.

Sacks persuaded officials at the Monsour Medical Center in Jeannette to create the research institute, which was nothing more than a shell company, according to the charges.

The institute joined two group purchasing organizations and began buying large amounts of medical supplies that should have been designated only for the hospital's use and not resold, according to the charges.

Purchases were made from major drug companies, AmerisourceBergen of Valley Forge and McKesson Corp. San Francisco. Monsour then sold the medications to Millenia Hope Healthcare Inc., which was located at Monsour.

Millenia then sold the drugs directly to Sacks or to San Med Development Group, which is owned by Sacks, according to prosecutors.

Sacks supplied Monsour with the money to buy the discounted drugs. The company then tried to disguise the transaction by wiring the money to a Canadian bank, which in turn wired the money back to Monsour, according to the plea agreement.

The novel element here seems to be the charge of international money laundering.

KV Pharmaceutical

Bloomberg reported:

KV Pharmaceutical Co. agreed to pay a $25.8 million fine and forfeit $1.8 million to resolve a U.S. Justice Department investigation of its generic pharmaceutical marketing and distribution unit, which will cease operations.

That unit, Ethex Corp., will also enter a plea of guilty to criminal charges arising from its actions in 2008, according to a statement issued today by St. Louis-based KV. The agreement requires court approval, the company said.

Under the terms of the accord, Ethex will plead guilty to two felony counts stemming from its failure to make and submit to the U.S. Food and Drug Administration a report on its discovery of undistributed pills that 'failed to meet product specifications,' KV said separately in a filing today with the U.S. Securities and Exchange Commission.

Note that these first two cases both involved guilty pleas to criminal charges, felonies in the latter case.  Further note, however, that in the latter case, the felony pleas were made by a subsidiary of the corporation, which will then be dissolved, leaving the parent corporation intact.  Although in both cases organizations pleaded guilty to criminal charges, there were no reports that any individuals who worked for or were otherwise involved in these organizations pleaded guilty to any charges.
Mariner Health Care, SavaSeniorCare (and Omnicare)

Again, from a report by Bloomberg:

The U.S. reached a $14 million settlement with nursing home chains Mariner Health Care Inc. and SavaSeniorCare Administrative Services LLC over allegations of kickbacks from a supplier of drugs to nursing home patients.

The accord resolves claims that the companies and their principals, Leonard Grunstein, Murray Forman and Rubin Schron, solicited kickbacks from Omnicare Inc., the U.S. Justice Department said in an e-mailed statement.

The defendants conspired to have Omnicare pay $50 million in exchange for agreeing to use the supplier for 15 years, the government said last March in a complaint in Boston. The alleged kickback scheme involved Omnicare’s paying $40 million to buy a Mariner unit whose only assets were less than $3 million in accounts receivable, according to the complaint.

Note that we discussed another settlement involving Omnicare and kickback allegations here.  It appears, however, that Omnicare paid any additional penalty in this case, despite allegations that it provided the kickbacks.

Summary

Again, another week, another series of colorful legal settlements and/or guilty pleas and/or convictions involving health care organizations.  Again, although organizations settled or pleaded guilty, no individuals seemed to be held accountable for authorizing, directing, or implementing the actions that lead to these pleas and settlements.

So, here we go again ... To repeat, seemingly ad infinitum, these are just the latest in a now long parade of settlements and guilty pleas and criminal convictions, sometimes involving charges like bribery, fraud, or kickbacks,  that serve as reminders of poor behavior by myriad health care organizations. As we have previously noted, these settlements seem to have little deterrent effect on future bad behavior. (Note that many large health care organizations have settled or plead guilty in several major cases since we started commenting on such settlements.) Usually, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior. Until the people who approve, direct, and perform unethical or illegal acts pay some penalties, expect such acts to continue. I again suggest that to truly reform health care, we need rigorous regulation of health care organizations that has the power to deter unethical behavior that may risk patients' health.

Omnicare, IVAX Settle

Settlements and kickbacks and corporate integrity agreements, oh my (to the tune of "lions and tigers and bears, oh my")

To quote the BusinessWeek version of the story:

A $112 million settlement involving alleged drug kickbacks that the Justice Dept. announced with the nation's largest nursing home pharmacy and a generic drug manufacturer on Nov. 3 is part of a wide-ranging investigation of suspected Medicaid fraud by the pharmaceutical industry.

Under Tuesday's settlement, Omnicare will pay $98 million plus interest to the federal government and a number of state Medicaid programs to settle allegations that it participated in kickback schemes with IVAX, J&J [Johnson & Johnson], and two nursing home chains. IVAX, a subsidiary of Israel's Teva Pharmaceutical Industries (TEVA), agreed to pay $14 million plus interest.

Omnicare and IVAX entered 'corporate integrity agreements' to establish new training and policies to prevent future problems. Neither company admitted any wrongdoing.

Here are some details of the alleged wrong-doing:

Omnicare is a publicly traded pharmacy benefit manager for long-term care facilities that operates in 47 states, the District of Columbia, and Canada. It had revenues of $6.3 billion in 2008.

According to the settlement, Omnicare allegedly received $8 million in payments from IVAX in 2000-04 to buy $50 million in generic drugs and recommend that physicians prescribe them to their nursing home patients. Omnicare entered the contract even though its outside counsel repeatedly warned it might violate the federal anti-kickback law, the government alleged in its complaint, filed in March. Omnicare also took payments from New Brunswick (N.J.)-based J&J from 1999 to 2004 to aggressively persuade doctors to prescribe Risperdal, an anti-psychotic drug, and discourage use of alternative medications, according to the settlement.

In addition, Omnicare allegedly paid $50 million to nursing home chains Mariner Health Care and SavaSeniorCare in 2004 to keep referring their Medicaid and Medicare patients to Omnicare for pharmacy services.

It is noteworthy that these activities went on despite repeated advice of at least one attorney:

According to the government's complaint, Omnicare again ignored its outside counsel's advice that the payment was illegal.

The activities also went on despite Omnicare's participation in a previous corporate integrity agreement.

This isn't the first time Omnicare has had to settle civil fraud complaints filed by the government. In 2006, Omnicare agreed to pay $102 million to settle Medicaid fraud cases in 43 states, without admitting wrongdoing, including a $52.5 million settlement with Michigan. One complaint accused Omnicare of switching two drugs from tablet to capsule form to boost Medicaid payments. Omnicare had to enter a five-year corporate integrity agreement.

As I have written again and again regarding many other cases that resulted in legal settlements or guilty pleas, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior.

For once, the coverage of this case included some opinions similar to mine:

The Office of Inspector General of the Health & Human Services Dept. has the authority to bar health-care companies from participating in the Medicaid, Medicare, and other federal health programs as a penalty for violating anti-fraud laws. That's a severe sanction given the huge size of those programs. The settlements with Omnicare and IVAX left open the possibility of exclusion.

Some experts say Omnicare should be barred as a repeat offender, to send a strong message to other pharmaceutical industry players that fraud will no longer be tolerated. 'If the government were really serious, they'd give Omnicare the death sentence,' said Erik Gordon, a business professor at the University of Michigan who follows the pharmaceutical industry. 'Then all the other players would say this isn't just the cost of doing business, this is a bet-the-company thing.'

West declined to comment on whether the Justice Dept. will recommended the exclusion of the two companies, saying only that his office works closely with the OIG's office on appropriate penalties.

[Patrick] Burns, with Taxpayers Against Fraud, said the government has been hesitant to exclude health-care companies for fraud, fearing it will be seen as overzealous. But he believes that's the wrong attitude. 'Doing business with the U.S. government is a privilege, not a right,' he said. 'I think Omnicare has abused the privilege.'

Finally, note that the description of this case suggested that the kickbacks had effects on physicians' prescribing and hence the use of specific drugs. The Justice Department's filing alleged that in return for the payment from IVAX, Omnicare tried to get physicians to prescribe that company's products, and that in return for the payment from J&J, Omnicare pushed them to prescribe the atypical anti-psychotic Risperdal. Thus the activities that went on this case could have lead to the use of inappropriate, useless or even harmful drugs by certain patients.

I submit that would-be health care reformers who want to improve care, reduce costs and improve access should advocate for real negative consequences for people who implement, direct or approve the various versions of fraud, kickbacks, and miscellaneous corruption and malfeasance we have discussed on Health Care Renewal.

By the way, it appears one of the members of Omnicare's Board of Directors is also a leader in academic health care.  She is Andrea R. Lindell, DNSc, RN, who is also Dean of the College of Nursing at the University of Cincinnati.  One would think that someone who thus boasts "the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice" needs to keep a closer eye on the ethical aspects of her company's management.

Omnicare, IVAX Settle

Settlements and kickbacks and corporate integrity agreements, oh my (to the tune of "lions and tigers and bears, oh my")

To quote the BusinessWeek version of the story:

A $112 million settlement involving alleged drug kickbacks that the Justice Dept. announced with the nation's largest nursing home pharmacy and a generic drug manufacturer on Nov. 3 is part of a wide-ranging investigation of suspected Medicaid fraud by the pharmaceutical industry.

Under Tuesday's settlement, Omnicare will pay $98 million plus interest to the federal government and a number of state Medicaid programs to settle allegations that it participated in kickback schemes with IVAX, J&J [Johnson & Johnson], and two nursing home chains. IVAX, a subsidiary of Israel's Teva Pharmaceutical Industries (TEVA), agreed to pay $14 million plus interest.

Omnicare and IVAX entered 'corporate integrity agreements' to establish new training and policies to prevent future problems. Neither company admitted any wrongdoing.

Here are some details of the alleged wrong-doing:

Omnicare is a publicly traded pharmacy benefit manager for long-term care facilities that operates in 47 states, the District of Columbia, and Canada. It had revenues of $6.3 billion in 2008.

According to the settlement, Omnicare allegedly received $8 million in payments from IVAX in 2000-04 to buy $50 million in generic drugs and recommend that physicians prescribe them to their nursing home patients. Omnicare entered the contract even though its outside counsel repeatedly warned it might violate the federal anti-kickback law, the government alleged in its complaint, filed in March. Omnicare also took payments from New Brunswick (N.J.)-based J&J from 1999 to 2004 to aggressively persuade doctors to prescribe Risperdal, an anti-psychotic drug, and discourage use of alternative medications, according to the settlement.

In addition, Omnicare allegedly paid $50 million to nursing home chains Mariner Health Care and SavaSeniorCare in 2004 to keep referring their Medicaid and Medicare patients to Omnicare for pharmacy services.

It is noteworthy that these activities went on despite repeated advice of at least one attorney:

According to the government's complaint, Omnicare again ignored its outside counsel's advice that the payment was illegal.

The activities also went on despite Omnicare's participation in a previous corporate integrity agreement.

This isn't the first time Omnicare has had to settle civil fraud complaints filed by the government. In 2006, Omnicare agreed to pay $102 million to settle Medicaid fraud cases in 43 states, without admitting wrongdoing, including a $52.5 million settlement with Michigan. One complaint accused Omnicare of switching two drugs from tablet to capsule form to boost Medicaid payments. Omnicare had to enter a five-year corporate integrity agreement.

As I have written again and again regarding many other cases that resulted in legal settlements or guilty pleas, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior.

For once, the coverage of this case included some opinions similar to mine:

The Office of Inspector General of the Health & Human Services Dept. has the authority to bar health-care companies from participating in the Medicaid, Medicare, and other federal health programs as a penalty for violating anti-fraud laws. That's a severe sanction given the huge size of those programs. The settlements with Omnicare and IVAX left open the possibility of exclusion.

Some experts say Omnicare should be barred as a repeat offender, to send a strong message to other pharmaceutical industry players that fraud will no longer be tolerated. 'If the government were really serious, they'd give Omnicare the death sentence,' said Erik Gordon, a business professor at the University of Michigan who follows the pharmaceutical industry. 'Then all the other players would say this isn't just the cost of doing business, this is a bet-the-company thing.'

West declined to comment on whether the Justice Dept. will recommended the exclusion of the two companies, saying only that his office works closely with the OIG's office on appropriate penalties.

[Patrick] Burns, with Taxpayers Against Fraud, said the government has been hesitant to exclude health-care companies for fraud, fearing it will be seen as overzealous. But he believes that's the wrong attitude. 'Doing business with the U.S. government is a privilege, not a right,' he said. 'I think Omnicare has abused the privilege.'

Finally, note that the description of this case suggested that the kickbacks had effects on physicians' prescribing and hence the use of specific drugs. The Justice Department's filing alleged that in return for the payment from IVAX, Omnicare tried to get physicians to prescribe that company's products, and that in return for the payment from J&J, Omnicare pushed them to prescribe the atypical anti-psychotic Risperdal. Thus the activities that went on this case could have lead to the use of inappropriate, useless or even harmful drugs by certain patients.

I submit that would-be health care reformers who want to improve care, reduce costs and improve access should advocate for real negative consequences for people who implement, direct or approve the various versions of fraud, kickbacks, and miscellaneous corruption and malfeasance we have discussed on Health Care Renewal.

By the way, it appears one of the members of Omnicare's Board of Directors is also a leader in academic health care.  She is Andrea R. Lindell, DNSc, RN, who is also Dean of the College of Nursing at the University of Cincinnati.  One would think that someone who thus boasts "the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice" needs to keep a closer eye on the ethical aspects of her company's management.