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Wrong Prescription 

The sweet deal a local medical firm got from the Justice Department shows how soft the Bush administration really is on corporate crime

Wednesday, Mar 23 2005
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Let's say you're happily planting tomatoes, stalking an ex-boyfriend, or whatever it is you do, when a vein in your brain sprouts a bulge like a raspberry and turns your vision dark. To prevent this cerebral aneurysm from rupturing and killing you, a doctor threads a catheter through a vein in your leg, up through your torso, and into your head. If everything goes right, she pushes minuscule coils of platinum alloy wire through the catheter toward the area of the bulge.

Were your brain fully functioning at this time, you might think that your doctor chose to shove this particular brand of so-called embolic coil through you because she believed it was the best possible way to block blood flow to the aneurysm, prevent a rupture, and save your life.

You certainly wouldn't wish to imagine your doctor made her choice based on a medical equipment manufacturer's bribe.

A recent case involving a Sunnyvale company that makes a version of the aforementioned embolic coil device, however, suggests our government could take a far sterner stance combating the practice of medical payola, in which medical companies bribe doctors to choose one brand of device or medicine over another.

Earlier this month, the U.S. Justice Department entered into an unusual agreement with the medical device manufacturer Micrus Corporation after the company admitted to bribing doctors in France, Turkey, Spain, and Germany to have their hospitals purchase Micrus' embolic coil devices.

Micrus paid more than $105,000 to foreign physicians, disguising the payments on the company's books as stock options, honorariums, and commissions, according to a Justice Department press release. Rather than prosecute the company under the Foreign Corrupt Practices Act, which makes such overseas bribery a crime, the Justice Department entered into an unusual "nonprosecution agreement," in which prosecutors agreed to drop charges in exchange for a $450,000 fine and a promise that the company won't commit the same crime again.

Justice Department spokesman Bryan Sierra said the Micrus nonprosecution agreement is the result of a specific government policy aimed at preserving American jobs and bolstering U.S. stock prices by not criminally prosecuting corporate wrongdoers.

According to a 2003 Justice Department memorandum, issued after the January 2002 indictment of the accounting firm Arthur Andersen and its subsequent downfall, prosecutors were to consider "collateral consequences, including disproportionate harm to shareholders" when considering whether to indict corporations accused of crimes.

"Some companies might be forced to go out of business, fire employees, or reduce value to shareholders," Sierra said. "That's one of the factors you have to consider: Are you having an unintended consequence on the overall economy if you indict a corporation blindly?"

In this context, Sierra said, the Micrus settlement was fair. The $450,000 fine was a severe one, he said, and the Justice Department reserves the right to prosecute should Micrus engage in future criminal activity.

The fine represents only a fraction of the company's sales in the region they were handing out illegal payola. Last year, European sales made up $7 million, or more than 40 percent of Micrus' total 2004 revenues.

Micrus did not return calls seeking comment for this column.


Outside the floodlight of last week's conviction of Bernie Ebbers, the stock-rigging CEO of WorldCom, and the upcoming, sure-to-be-high-profile prosecution of Enron's Ken Lay, there remains a vast prosecutorial darkness, in which companies continue to cause illegal harm and largely get away with it. Though its ex-CEO may go to the clink, WorldCom the company is essentially getting off; as with Micrus, instead of suffering criminal prosecution, the company entered settlements with the government involving fines and promises to change its ways. The settlements may even allow WorldCom to use U.S. bankruptcy laws to shed debt it illicitly racked up during the Ebbers era. For all the rough talk from Bush Administration officials -- toward the U.N., toward Muslim states, toward a host of other perceived enemies -- companies that engage in behavior that harms Americans seem to get a near-automatic pass.

Nonprosecution agreements such as Micrus Corp.'s "are sending the wrong message to the corporate community in that you can engage in felonious wrongdoing and save the company," said Russell Mokhiber, who edits the newsletter Corporate Crime Reporter and who believes such agreements fail to deter corporate crime. "Shareholders and corporations can benefit from criminal wrongdoing, so they should suffer when they're caught."

Though Micrus was caught, it doesn't seem to have suffered appreciably. Lack of apparent prosecutorial verve may be partly to blame. A portion of blame also goes to a U.S. regulatory environment that is far feebler than conservatives make it out to be, even when it comes to behavior as rotten as the skewing of medical judgment via corporate payola.


Two days after entering the nonprosecution agreement with the Justice Department, Micrus announced a $57.5 million initial stock offering, as if to shout that there's no shame in investing in a company that's admitted to multiple counts of bribery, so long as the company has a get-out-of-court-cheap card from the federal government.

There's apparently little shame in supervising the sales force of a company that bribes doctors, either. In recent financial filings, Micrus announced that it had fired its CEO and its vice president of global sales and marketing in connection with the bribes to foreign doctors. A couple of months after marketing VP Herbert Mertens was fired, however, he resurfaced as sales and marketing vice president of Endologix Inc., a California aneurysm-device company founded and, until not long ago, led by current Micrus board chairman Michael R. Henson. Mertens did not return two calls requesting comment.

Current Endologix CEO Paul McCormick said he knew of the criminal behavior of Micrus' European sales force, but he didn't consider the potential role of Mertens, their supervisor, a problem for Endologix. "It's not a concern at this moment. I saw the same information, and we didn't see it as a problem," McCormick said. "His hiring was based on discussions with references, which were very positive." McCormick said former Endologix President and CEO Henson did not speak with Endologix about hiring Mertens.

Meanwhile, Micrus doesn't seem to have shied away from paying out cash to domestic doctors, though in the U.S. there's no reason to believe Micrus' payments are in violation of the law. The company keeps a stable of doctors called "physician advisers" who receive stock options and honoraria in exchange for "providing feedback" on the Micrus aneurysm device. Each of these doctors works for a hospital, which presumably would be in a position to buy Micrus products.

"Although these advisers may contribute significantly to our affairs, we generally do not expect them to devote more than a small portion of their time to us," Micrus notes in financial statements.

Two calls to Micrus "adviser" in Northern California, Kaiser Permanente physician Sean Pakbaz, went unreturned. Kaiser Permanente spokeswoman Kathleen McKenna said the health care company does use Micrus' embolic coil devices at its Sacramento facility. Kaiser's conflict of interest policy prohibits a doctor in a position to influence the purchase of a medical device from receiving money from, or having financial interests in, the manufacturer of the device. Pakbaz was away at a conference last week, McKenna said, and couldn't be reached to find out what financial benefit he might receive from his role as a Micrus "physician adviser." She also said she was unable to determine by press time whether Pakbaz had been in a position to influence the purchase or use of Micrus' product.

How could a company settle with the Justice Department for making payments to physicians overseas, then, two days later, announce it's making payments to doctors in the U.S., and all while asking for millions of dollars from investors?

According to William Steinman, vice president of Transparent Agents and Contracting Entities, a nonprofit group that gives anti-bribery workshops to corporations, it's common in the U.S. for medical companies to provide doctors with "incentives." These sorts of payments may run afoul of the law in countries with government-financed health systems, because doctors can be considered public officials subject to the Foreign Corrupt Practices Act. Here, it seems, such payments seldom lead to prosecution.

Assistant U.S. Attorney James Sheehan in Philadelphia has made a career of prosecuting medical payola and health care fraud cases, though he was not involved in the Micrus agreement. He says payola may now be more common in the United States because in 1989 the health care industry lobbied Congress for legal provisions that make it extremely difficult to prove that payments from medical companies to doctors are in fact bribes. Before then, federal anti-kickback laws made it illegal to accept any payment or other benefit in return for buying medical services or goods subsidized by a federal health program. The 1989 revisions provide a "safe harbor" from kickback prosecution for doctors who accepted money from providers under personal service agreements or consulting contracts.

"The reason that [Steinman] says it's widespread, I think, is the government, in order to succeed in a case, has to show a connection between the payment and the act of ordering a product or service. We have to show that the doctor, in fact, intended to use the device based on the payment," Sheehan said. "You look for memos. You like to have tapes. For their part, they'll say, 'It was only because of my professional judgment, not because of the payment.'

"It's important, because the medical devices we're talking about are potentially lifesaving," adds Sheehan. "Patients are vulnerable. When a doctor is putting a stent in an artery, or doing something with your heart, or putting a patch on your aorta, you're trusting your doctor. We want them to make a decision to serve their patients.

"Not to put money in their pockets."

About The Author

Matt Smith

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