Device giants shed integrity agreements

After eight years, medical-technology giant Boston Scientific is set to break free of corporate-integrity agreements the federal government imposed over alleged misbehavior. Medtronic operated under its own five-year integrity agreement until last spring. St. Jude Medical had one that ended in 2010.

The expiration of Boston Scientific's agreement near the end of the year will mark a turning point for the Twin Cities' big devicemakers: It has been more than a decade since none of the big three has had to operate under a written agreement not to break the law.

Such agreements with Medicare's inspector general serve as a kind of probation for corporations, which stand to get kicked out of the massive federal health care program for repeat violations.

Still, a Star Tribune review of legal filings found that all three companies settled multiple allegations of fraud with the Justice Department after signing agreements to keep their conduct aboveboard.

So the successful completion of the agreements raises the question: Do integrity agreements really make companies more ethical? The devicemakers tout their enhanced codes of conduct and extensive employee training, but skeptics remain.

"I don't believe any of these companies are changing their cultures," said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund in Washington. "I do think there is this natural predatory rapaciousness to the American corporate system. People want to incentivize production, but what they never figure out is that they are also incentivizing fraud."

Companies under the agreements typically develop extensive codes of conduct and retrain their workers, and some have been required to disclose every time they pay a doctor for virtually anything — foreshadowing the transparency mandate that begins on Tuesday for all device and drug companies to publicly report the same information.

Others argue, however, that the agreements do get management's attention and lead to better business practices.

"I think everyone has gotten the message loud and clear. If they had suspect practices, I think they've changed them," said Bernard Ford, a managing director with Chicago's Navigant Consulting, which offers independent-review services for companies under corporate-integrity agreements. "Management can't take the hit from their boards or investors for allowing these things to happen."

Several observers noted that Boston Scientific, Medtronic and St. Jude all essentially acquired their way into their CIAs, because the conduct targeted by whistleblowers was taking place at smaller independent firms before they were bought up by the larger parent corporations.

Defenders also say CEOs may have strong business reasons for deciding to settle out of court and sign an integrity agreement, undercutting the notion that big settlements necessarily indicate bad behavior.

"In some cases, these issues are resolved as a condition of acquisition or as a part of acquisition. That has little to do with whether a company is engaged in wrongdoing," said Chris White, general counsel for Washington trade group AdvaMed.

Minnesota's devicemakers were among a parade of medical-device firms across the country targeted in a national dragnet of federal fraud and billing lawsuits filed by whistleblowers under the federal False Claims Act in the mid-2000s. Such cases are typically filed by former company employees acting on insider information. Such whistleblowers are often criticized as being motivated by personal profit instead of ethics, since they stand to collect between 15 percent and 30 percent of any settlement stemming from their allegations.

Corporate defenders argue that the spike in integrity agreements in the 2000s had less to do with shady behavior and more to do with companies' inability to defend themselves against a tide of whistleblower litigation.

One way for companies to keep themselves out of corporate-integrity agreements would be to fight whistleblower allegations in court and prove that their employees never broke the law. In practice, though, health care companies virtually never go to trial in False Claims Act cases, because the risks are too high: any health care company found liable or guilty of defrauding Medicare can potentially be excluded from the program.

Exclusion is widely seen as a death penalty for any health care supplier, but especially for device companies, whose pacemakers and other products are primarily aimed at the Medicare-aged demographic.

"Lots of good companies, really good companies with good compliance programs and people trying to act in a good way, find themselves with two or three or four settlements," said Stephen Sozio, a Jones Day corporate defense attorney and a former federal prosecutor. "Just because you've had two or three or four settlements with the Department of Justice does not make these companies bad actors. It just means they are a prime target."