History Repeats, and Repeats: McKesson Settles

Here a settlement, there a settlement, everywhere a settlement....  And the march continues, as reported by the New London (CT) Day,

Pharmaceutical distributor McKesson Corp. will pay Connecticut $15 million for 'illegal and deceptive practices' that inflated drug costs for both individual consumers and state-funded programs, Attorney General Richard Blumenthal announced Tuesday.

The settlement calls for $9 million to be used for reimbursing Connecticut's Medicaid program and $3 million for ConnPace, a state program that provides drug coverage for seniors. In addition, $2.3 million will be paid as a civil penalty and $700,000 will go into the state's drug-assistance program for AIDS patients.

Blumenthal had charged in a lawsuit that San Francisco-based McKesson conspired with First DataBank - which publishes average wholesale prices of drugs - to increase the amounts Connecticut paid for brand-name remedies by about 25 percent over usual wholesale costs. Previously, the prices had been 20 percent above wholesale.

McKesson used the increase to sweeten the 'spread' - the amount of profit - that could be taken by pharmacies, thereby increasing its share of the market, he said.

'McKesson manipulated the drug market - conspiring to inflate costs for hundreds of drugs and exploiting public programs that serve our most vulnerable citizens,' Blumenthal said in a statement.

Having been posting on this blog for nearly five years, it is interesting that viewed over time, patterns emerge suggesting that certain organizations have chronic problems with bad behavior. Last year, we noted that a former McKesson Chairman of the Board was convicted of five counts of securities fraud arising from actions occurring in the early part of the 21st century. Five former McKesson executives had already pleaded guilty to related crimes. Last year, Bloomberg called this scandal "one of the largest white-collar crimes."

This pattern may go back a lot longer that the turn of the last century.  Amazingly, the same company, McKesson, was involved in one of the biggest frauds of the great depression era. From the Wikipedia entry,

The McKesson & Robbins, Inc. scandal of 1938 was one of the major financial scandals of the 20th century. The company McKesson & Robbins, Inc. (now McKesson Corporation) had been taken over in 1925 by Phillip Musica, who had previously used Adelphia Pharmaceutical Manufacturing Company as a front for bootlegging operations. Musica, a twice-convicted felon, used assumed names to conceal his true identity in taking control of the two companies: Frank D. Costa at Adelphia Pharmaceutical and F. Donald Coster at McKesson & Robbins. Although he was successful in expanding the company’s legitimate business operations, Musica recruited three of his brothers, also working under assumed names, one outside the company and two inside it, to generate bogus sales documentation and to pay commissions to a shell distribution company under their control. Eventually, McKesson & Robbins treasurer Julian Thompson discovered the distribution company was bogus. It was eventually determined that about $20 million of the $87 million in assets on the company’s balance sheet were phony.

In December 1938, the Securities and Exchange Commission (SEC) opened an investigation and Musica was arrested. Only after he was booked, fingerprinted and released on bond did the authorities realize that 'Coster' was in reality Musica. His bond was revoked and he committed suicide before he could be rearrested.

The McKesson & Robbins scandal led to major corporate governance and auditing reforms. The SEC required that public companies have audit committees of 'outside' directors and that the appointment of auditors be approved by the shareholders. The American Institute of Accountants (now the American Institute of Certified Public Accountants) adopted audit standards requiring that auditors verify accounts receivable and inventory.

So I guess in some ways it should not be a surprise that a company involved in one of the biggest financial scandals of the depression era, and then one of the biggest white-collar crime of the early 21st century, should now be involved in a comparatively small settlement involving allegations of over-charges for drugs.

Given that in this latest case, the settlement was small, and there were no negative consequences for any individual who authorized, directed, or implemented the alleged market manipulation, it seems doubtful that it will have any lasting effect on corporate leadership of the corporate culture.

McKesson's long and chequered history suggests some sort of chronic affliction of its corporate culture.  It also suggests a rationale for requiring heath care organizations to have ongoing, active organizational ethics policies.  

Former McKesson CEO and Board Chairman Convicted of Fraud

Continuing with our annals of health care crime, Bloomberg.com reported a new verdict on a very old case:

Former McKesson Corp. Chairman Charles McCall was convicted in a second trial of participating in a fraud 10 years ago that cost investors $8.6 billion, one of the largest white-collar crimes at the time.

A federal jury in San Francisco yesterday found McCall guilty of five of six counts of securities fraud and circumventing accounting rules. He was acquitted of falsifying records. Sentencing is set for March 2. Ex-McKesson General Counsel Jay Lapine was found not guilty of three charges.

McCall and Lapine were accused of hiding backdated sales contracts from auditors and other conduct that improperly inflated revenue figures at San Francisco-based McKesson, the biggest U.S. drug distributor, and HBO & Co., a software maker led by McCall that was acquired by McKesson in 1999.

The McCall verdict was a victory for prosecutors who lost a 2006 trial of the ex-chairman. Assistant U.S. Attorney David Anderson told jurors in the three-week trial that McCall learned of the practices a few months before HBO was to be acquired.

Instead of blowing the whistle, McCall covered up the fraud and was named chairman of the merged company, Anderson said.

When McKesson disclosed in April 1999 that sales had been prematurely booked, leading to a restatement, the shares lost 47 percent of their value. McCall and Lapine were fired that year.

A federal investigation followed, and five former McKesson executives pleaded guilty. McCall and Lapine were indicted in 2003. McKesson, which wasn’t named in the U.S. criminal cases, agreed to pay $960 million in 2005 to settle investor lawsuits.

On Health Care Renewal, we often seem to get caught up in the details of the moment. This case is a reminder that the problems we have been discussing have been going on for a long time, certainly long before we started to use the new-fangled medium of a blog to write about them.

The case also is a rare example of health care leaders actually suffering negative consequences for bad behavior.  We have noted many examples (see some here) in which bad behavior by health care organizations results only in a penalty for the organization as a whole, whose impact may be diffused among employees, stock-holders, and customers or clients.  Those who authorized, directed, or implemented the behavior often suffer no negative consequences.  In the current case, some of the responsible leaders have already paid a penalty, and now the most senior responsible leader also appears to be on the verge of also paying a penalty. 

On the other hand, it took 10 years from the time the bad behavior was recognized for the penalty to be decided.  Meanwhile, Mr McCall likely continued to enjoy the wealth he had amassed in his position of leadership.  The 1999 McKesson HBOC proxy statement, which included a statement that McCall was forced to resign his positions as Chairman of the Board and employee, noted that Mr McCall had already received a salary and bonus of greater than $2 million (in 1999 dollars) that year, and was the proud possessor of 2,879,677 shares of common stock, more than 1% of shares outstanding, after his resignation. 

I say again, meaningful health care reform is unlikely unless we deal with the problem of conflicted, unethical, and sometimes corrupt leadership of health care organizations.

A Wide Web of Healthcare Data: He Who Controls The Data, Controls the Playing Field

In posts such as here and here, it's become apparent that "Evidence Based Medicine" (EBM), while perhaps reasonable in theory, is probably unreasonable in practice with the ethics of healthcare in 2008.

One cannot have evidence based rules for anything, let alone healthcare, if the evidence is tainted.

Think clinical research and the drivers of "publish or perish" are the only domains where this evidentiary taint can occur?

Think again.

From a medical colleague, a talented ER physician:

Did anyone see that Wolters Kluwer (a leading multidomestic multimedia company with corporate office in Amsterdam) plans to buy electronic medical platform Up-To-Date?

Correct me if I am off track on the issue of the "full-circle web" of information exchange - an exchange that starts with the sanctity of the private physician patient relationship.

OK, I have a private relationship with my patient, but the perverse laws say that our relationship and the information ‘collected’ is no longer sacred. It may be used without consent under the guise of 'Treatment, Payment or Healthcare Operations' (TPO).

From the Miller School of Medicine Privacy & Data Protection project glossary:

HIPAA bundles a large number of functions into the term "health care operations." This expansive list is important for many reasons, most notably because HIPAA requires no permission from patients for uses and disclosures of protected health information (PHI) for "treatment, payment or health care operations (TPO)."

Covered entities may obtain a consent for TPO-related uses and disclosures, but the practice is optional under HIPAA. (It may nonetheless be required by state law.)

Additionally, the prescription information ‘exception’ from that sensitive relationship is fair game for the data-miners to sell to Pharmacy Benefit Managers (PBMs) and the like.

The so-called ‘Publishing’ company, Wolters Kluwer, who by the way unashamedly writes friend of the court briefs supporting the data merchants and miners (e.g., Amicus Briefs supporting the plaintiffs; IMS and Verispan), is now buying one of the most widely used point of care "Evidence based medicine" tools, Up-to-date.  This is a software application for physicians to practice ‘evidence’ base medicine.

Verispan is a subdiary of one of the largest EHR vendors, McKesson. Without sounding like a nut-case full of crazy conspiracies ...

Is not this bizarre web not only destroying the trust between the patient and the physician, but additionally eroding the trust of what actually is ‘evidence’ based medicine?

I thought the rigor of science was supposed to be the driver and best influence of my decision making process for my patients, not the pull of ‘Pharma and Friends’ puppet stings.

I guess as a physician I am just marginalized to an assembly-line worker for big Pharma.

As an aside:

1. the direct to patient(consumer) marketing expenditures of Pharma – est. $30 billion / year.
2. the entire NIH budget $28 bil/yr.

So, it seems, evidence based medicine is not only threatened by commercial taint of clinical trials and research, it's also potentially threatened by the drivers and behaviors of the Data Merchant component of the healthcare IT ecosystem.

Who polices them, I ask?

-- SS