In the last two months, two device manufacturers, Biomet and Smith & Nephew, accepted penalties for less defensible financial relationships with physicians. They entered into deferred prosecution agreement and settled charges that they bribed doctors employed by foreign governments. Some of these relationships, especially those involving Biomet, would have been prospectively indistinguishable from the sorts of conflicts of interest that have been so fervently defended.
Background
Starting in 2007, we posted (here, here, here, here and here) about the payments, often huge, that five manufacturers of prosthetic joints, Biomet, DePuy Orthopaedics,a unit of Johnson & Johnson, Stryker Orthopedics,a unit of Stryker Inc, Zimmer Holdings, and Smith & Nephew, revealed they made to orthopedic surgeons and various academic and other organizations in the US. All companies except Stryker were charged with "criminal conspiracy to violate anti-kickback laws," and all were subject to deferred prosecution agreements. (Stryker entered into a voluntary compliance agreement.) According to a US Department of Justice news release, the agreements required:
• A federal monitor will be in place at each company to review compliance with the DPAs and NPA and all new and existing consulting relationships with the companies;
• Each company is required to conduct a needs assessment to determine the reasonable needs for educational consulting services, and new product-development consultants.
• All new consulting agreements shall require physicians to disclose their financial engagements with any company to their patients and require the companies to disclose the name of each consultant and what they have been paid on the company website.
These agreements ended in 2009.
The Latest Settlements
As we noted, in 2011, Johnson and Johnson admitted its subsidiaries, including DePuy, had been bribing doctors in Europe through 2007, and agreed to yet another deferred prosecution agreement.
Smith & Nephew
Last month, Bloomberg reported:
Smith & Nephew Plc, Europe’s biggest maker of artificial hips and knees, agreed to pay $22.2 million to settle allegations by the U.S. Justice Department and Securities and Exchange Commission that it engaged in a scheme to pay bribes in Greece.
Smith & Nephew admitted in filings today in federal court in Washington that two of its units were involved in a scheme for more than a decade to make 'illicit payments' to doctors employed by government hospitals or agencies in Greece in violation of the Foreign Corrupt Practices Act.
The London-based company, which entered into a deferred prosecution agreement with the U.S., agreed to pay a $16.8 million fine to settle the criminal allegations and another $5.4 million to settle a civil suit filed by the SEC.
The colorful specifics were:
Smith & Nephew admitted that from 1997 until June 2008, its U.S. and German units bribed public doctors in Greece to win business. The bribes were paid through a person described in court documents as a 'Greek distributor.' This person used shell companies that masked bribes as 'marketing services,' according to the statement of facts filed in the criminal case.In the SEC complaint, the payments made to the physicians were described as "commissions."
The document cites a March 2002 e-mail from the Greek distributor to a Smith & Nephew vice president in Memphis, Tennessee, complaining that the 'marketing services' payments weren’t enough, noting that competitors were paying 30 percent to 40 percent more.
'I absolutely need this fund to promote my sales with surgeons,' the distributor said in the e-mail, according to prosecutors.
Reforming a corrupt and dysfunctional public health system was one of the conditions of Greece’s acceptance of a European Union and International Monetary Fund bailout package in 2010. Doctors also supplement their income with payments from patients, called 'fakelaki,' small envelopes with cash for prompt treatment.
Note that the company made the usual sort of statement,
'We have what I believe to be a world-class compliance program, having enhanced it significantly since this investigation began in 2007,' Olivier Bohuon, Smith & Nephew’s chief executive officer, said in a statement. 'These legacy issues do not reflect Smith & Nephew today.'
He did not mention why the payments were continuing at a time when the company was already supposedly operating under the previous deferred prosecution agreement that arose out of the charges in the US discussed above.
Biomet
This week, the Indianapolis Star reported,
To sell its products abroad, medical device maker Biomet at times bribed doctors with cash, travel and meals, the federal government says.
The Warsaw, Ind.-based company agreed Monday to pay nearly $23 million to settle allegations that its payments to doctors violated the federal Foreign Corrupt Practices Act. The Securities and Exchange Commission alleges that Biomet, acting through four subsidiaries and its distributors, paid bribes from 2000 to 2008 to doctors in Argentina, Brazil and China in order to win business.
The settlement includes a $17.3 million criminal fine and $5.6 million to the SEC, the government and company said in separate news releases.
The details were,
he SEC accused Biomet of writing phony invoices to cover kickbacks as high as 20 percent of sales to push its products.
In other instances, Biomet provided doctors with money and travel in exchange for implanting artificial joints and other Biomet products in their patients, says the SEC complaint, which was filed in federal court in Washington. In China, Biomet vendors gave doctors cash upon completion of surgeries using Biomet implants, the lawsuit says.
'I've got to send him to Switzerland to visit his daughter,' a Biomet distributor wrote in a 2001 email to the company, describing a trip given as a reward to a Chinese doctor who implanted 10 Biomet hips and knees a month in patients.
The SEC said Biomet's compliance and internal audit functions failed to stop the practices even after determining they were illegal.
Note how Biomet accounted for the payments,
The payments were falsely recorded on company books as 'commissions,' 'royalties' and 'scientific incentives,' the Justice Department said.
Furthermore, the Fort Wayne Journal-Gazette added,
With the settlement announced Monday, the Justice Department found that Biomet and its subsidiaries covered up bribery payments by officially recording them as 'consulting fees' or 'commissions.'
Note that Biomet's official response was similar to Smith & Nephew's, as reported in another article from the Fort Wayne Journal-Gazette,
Jeffrey Binder, Biomet’s president and CEO, didn’t address the company’s guilt or innocence in a written statement released Monday.
Biomet has 'significantly enhanced' its procedures worldwide in recent years to ensure employees’ conduct is legal and ethical, he said.
'Moving forward, we intend to continue to adhere to our enhanced global compliance procedures, and to promote the company’s commitment to the highest ethical standards in all the markets that we serve,' Binder said.
Again, he did not explain why this time the enhanced compliance procedures are likely to work, given that the questionable conduct was still going on after the company had already entered into the 2007 deferred prosecution agreement.
Summary
Some Apparent Conflicts of Interest are Actually Bribes
In these cases, two medical device corporations paid doctors in several countries for implanting their products into patients. The resulting legal proceedings allow us to characterize these actions as bribes. Clearly both the companies' and the physicians' actions were unethical, since they lead to decisions that put the enrichment of the decision makers and those bribing them ahead of the patients' interests.
Some of the most common financial arrangements between health care professionals and industry that are thought of as conflicts of interest are paid consulting and payment of royalties for intellectual property. As we have discussed, e.g. here, conflicts of interest in medicine and health care are generally thought to raise the likelihood of corruption, but not necessarily to indicate corruption in specific instances. In the cases above, bribes were sometimes called "consulting payments or royalties." This suggests that some consulting payments and royalties which may commonly be thought of as conflicts of interest are outright bribes, that is, outright health care corruption.
Those who fervently defend conflicts of interest as inevitable, and necessary for collaboration and hence innovation (e.g., look here), often minimize the adverse effects of these conflicts (e.g., look here). In fact, any putative benefits of such conflicts ought to be contrasted with their possible harms. These cases make it clear that these harms include outright corruption which may be disguised as mere conflicts of interest.
This adds strength to arguments that conflicts of interest ought to be minimized or eliminated, not tolerated and "managed."
Current Measures to Enforce Laws Against Bribes and Kickbacks are More Theatre than Deterrent
The current cases are just the latest members in the march of legal settlements. We have noted that misbehavior in large health care organizations rarely leads to any negative consequences for the people who authorized, directed or implemented the offending actions. Instead, the penalties are, at most, fines paid by the organizations, not the people involved, and variants of deferred prosecution and/or corporate integrity agreements. We and others have previously argued without negative consequences affecting the people who authorize, direct or implement unethical actions, such actions will continue.
The current cases corroborate this. Corporations that had already paid fines and accepted deferred prosecution agreements for bribes to physicians continued to bribe other physicians. The failure of the offending corporations to admit any wrongdoing, or the need for specific changes of behavior in the future, suggests that the current fines and deferred prosecution agreements will not be any more effective than the previous ones. The current fashion of punishing behavior within health care organization with fines and agreements to behave better in the future appears to be more law enforcement theatre than serious deterrent.
As we have said before, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.
