A Corporate Integrity Agreement for Kyphon (part of Medtronic)

Another day, another "corporate integrity agreement." Last week, there were multiple news reports of a settlement of a civil lawsuit against medical device manufacturer Medtronic. According to the New York Times, some of the key points were:

A unit of Medtronic defrauded Medicare of hundreds of millions of dollars, according to a civil lawsuit that was unsealed Thursday and simultaneously settled with the Justice Department.

Two insiders had said Kyphon, which Medtronic acquired in 2007, improperly persuaded hospitals to keep people overnight for a simple outpatient procedure to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.

By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives.

The settlement requires Medtronic to pay the federal government $75 million plus interest, and to enter into a 'corporate integrity agreement' with the Office of Inspector General of the Department of Health and Human Services. The agreement will require the company to give correct advice to customers about how to apply for Medicare reimbursements. The company will also have to set up internal procedures to make sure it complies with the law.

Bloomberg's report (via the Boston Globe) also noted:

One former worker, Craig Patrick, said bosses ignored his warnings in 2005 that the practice amounted to fraud.

'It's my opinion that this was a very organized strategy from the beginning to make these inpatient cases, so facilities could afford the expensive kits and Kyphon could be very profitable,' he said in an interview.

After he warned supervisors at Kyphon, he was denied a promotion and told he 'wasn't a team player,' Patrick said. He left the company in 2005, after filing the suit, and now works for another medical device maker.

'The whole thing played out like a cliched movie you'd see about a whistle-blower,' he said.

This is becoming all too drearily familiar. We have all the usual elements: a clever, but deceptive plan by a health care organization to increase its profits, while incidentally driving excess medical care; an internal skeptic who is derided as "not a team player," and thus forced to become a whistle-blower; and eventually, an investigation and then a settlement that probably failed to recover all the costs incurred by the health care system, certainly did not reverse the excess care provided; and may not be sufficient to deter some clever but dishonest health care executive from coming up with the next version of this scenario.

I did find it interesting that the The New York Times article summarized the context of the case thus:

The medical device business is filled with small start-up companies trying to generate excitement about their new products and technologies, hoping to build market share and to attract deep-pocketed buyout offers. It has been fraught with allegations of bribes, exaggerated claims, and other unethical behavior.
One would think that were a segment of the health care industry to be "fraught with allegations of bribes, exaggerated claims, and other unethical behavior," the result would be not only outrage but some systematic efforts to combat these abuses. Instead, this particular case so far has inspired not a single pundit to view it with alarm, and there still seems to be no systematic efforts ongoing to combat "bribes, exaggerated claims, and other unethical behavior." It's the anechoic effect, as usual.

But politician and policy makers keep scratching their heads when confronted with ever increasing health care costs, ever declining access, and stagnant quality. And as we have noted before, the usual approach to these problems seems to focus on cutting physicians' payments, and imposing new guidelines and quality standards, usually starting with primary care. What's wrong with this picture?

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