Nancy-Ann DeParle, President Barack Obama’s health policy czar, served as a director of corporations that faced scores of federal investigations, whistleblower lawsuits and other regulatory actions, according to government records reviewed by the Investigative Reporting Workshop at American University.
Several of the companies were investigated for alleged kickbacks or engaging in other illegal billing schemes, while others were accused of serious violations of federal quality standards, including one company that failed to warn patients of deadly problems with an implanted heart defibrillator. Several of the cases ended with substantial fines paid to the federal government, even though the companies admitted no wrongdoing.
Since leaving her government job running Medicare for the Clinton administration, DeParle built a lucrative private-sector career. Records show she earned more than $6.6 million since early 2001, according to a tally by the Investigative Reporting Workshop.
Much of that corporate career was built at companies that have frequently had to defend themselves against federal investigations. After leaving government, DeParle accepted director positions at half a dozen companies suspected of violating the very laws and regulations she had enforced for Medicare. Those companies got into further trouble on her watch as a director.
Now she’s back in government as a leading voice in deciding the shape of health care reform. Named by Obama in March as director of the White House Office of Health Reform, making $158,000 a year, DeParle is the point person in pushing for the administration's plans for changing health care and the ways Americans pay for it — changes in which her former companies have a great deal at stake.
Critics see DeParle’s re-emergence as a classic case of Washington “revolving door” syndrome, despite Obama’s suggestions that he would shut that door.
The administration faces a “balancing act,” said Steve Ellis of the nonpartisan Taxpayers for Common Sense. Obama must find leaders with the proper expertise, but who are “not so conflicted that they cannot engage in all facets of the debate.”
Advocates of a “single-payer” coverage plan say that DeParle may be indebted to the companies she served, and more broadly to the health care industry.
“This woman owes her fortune to the corporations that she is making decisions about,” said Dr. David Himmelstein, an associate professor of medicine at Harvard University and a co-founder of Physicians for a National Health Program.
“She cashed in really big on her previous role in government and made millions and millions of dollars. Then she divests and all of a sudden she’s Snow White. It’s ridiculous.”
Among DeParle’s corporate connections:
# DaVita Inc., which owns and operates kidney dialysis centers, has been the subject of several government probes into its billing and drug-prescribing practices, most recently in December by Justice Department investigators in Georgia. DeParle joined the DaVita board in May 2001 and resigned in July 2008 “to devote more time to her other business activities,” according to the company. She earned more than $2 million in compensation and stock sales, according to records at the Securities and Exchange Commission.
# Boston Scientific Corp. reported to the SEC that it received five state or federal subpoenas during 2008, including ones from the Justice Department and Health and Human Services, which oversees the Medicare agency. In addition, Defense Department criminal investigators are looking into the company’s “marketing interactions” with doctors at a U.S. Army hospital in Tacoma, Wash. DeParle joined the Boston Scientific board in April 2006 and resigned on March 4 of this year, two days after she was appointed to the White House post. She earned more than $1.4 million in compensation and stock sales from her years at Boston Scientific and a company it bought, the Guidant Corp.
# Guidant, which already was in legal trouble for failing to disclose 12 patient deaths when DeParle joined the board in 2001, has since then faced new problems. After a college student died in 2005 when his implanted defibrillator failed on a biking trip, his doctor told Congress that Guidant officials had known of similar problems for three years, but failed to tell the public.
Read details of DeParle’s industry connections.
Five of the corporations whose boards DeParle served on have paid a total of $566 million since 2003 to settle fraud or product liability cases, often involving tax dollars paid by Medicare.
Four signed “corporate integrity agreements” in which they promised to tighten oversight of their billing practices in exchange for the government agreeing not to take legal action to kick them out of the Medicare program.
“These raise eyebrows,” said Ellis, of Taxpayers for Common Sense. “These are things that have to be considered and evaluated.”
The White House did not make DeParle available for an interview about her corporate ties. Her spokeswoman, Linda Douglass, said the White House would not have time to answer questions about DeParle’s actions as a director. DeParle also declined interview requests from msnbc.com, which is co-publishing this article with the Investigative Reporting Workshop.
A director's responsibility
There is no reason to think that DeParle was directly involved in any of the actions that led to the investigations and sanctions. DeParle was a member of the board of directors of these companies, not the chief executive officer managing day-to-day operations. It is rare for directors to be held legally accountable for illegal dealings by management.
However, the 2002 Sarbanes-Oxley law, passed by Congress after the scandals at Enron and other companies, requires directors to be more aware of what is happening inside companies. Federal guidelines tell directors they should exercise even more oversight in health care firms.
Michael W. Peregrine, a corporate compliance lawyer in Chicago, said that while board members aren’t obligated to “ferret out wrongdoing,” they need to question management once they learn of regulatory problems and to “make sure something is being done about it. The board has to ask, ‘What the hell’s going on here?’”
At three companies — Guidant, DaVita and Specialty Laboratories — DeParle was not only a director but also served on board committees responsible for monitoring the companies' compliance with laws and regulations.
Publicly traded companies must disclose to shareholders the existence of investigations, enforcement actions or lawsuits that could affect their earnings. These filings, made with the Securities and Exchange Commission, often are short on specifics, including when the conduct that’s under investigation allegedly occurred. These investigations typically drag on for years.
It's therefore difficult to say in some cases whether DeParle's board service coincided with the company's suspicious conduct, or whether some of the conduct preceded her service but only came to light during her service.
In a few additional cases, DeParle joined companies that had already gotten into trouble.
For example, DeParle agreed to join the board of Guidant just days after it acknowledged it had covered up the deaths of 12 patients and more than 2,000 injuries caused by a faulty surgical device. She was on the board when the company pleaded guilty to 10 felony charges in the case, and paid $92 million in fines. The apparent cover-up in the separate case involving the implanted defibrillator came to light when DeParle had been on the board for two years.
And she joined the board of Boston Scientific about a year after it had paid $74 million to settle a federal criminal investigation into the company's delay in recalling a faulty heart device. No charges were brought, and the company no longer sells the product, called a stent. It also denied wrongdoing as part of the settlement with prosecutors.
Peregrine, the regulatory compliance lawyer, said potential directors should be “cautious” about joining the boards of companies with a history of clashing with regulators. Board members need to satisfy themselves that the organization has developed “a culture of compliance” with laws, he said.
‘A dedicated public servant’
DeParle resigned her corporate board positions upon taking the White House position, according to a financial disclosure form dated May 13 but only released by the White House on June 12. A handwritten note on the first page says that, as of June 4, “all conflicting assets have been divested.”
Her spokeswoman said DeParle has recused herself from any matters that might affect these companies, and has sold her stock in them at a “fairly substantial financial loss to herself and her family.” DeParle has “come into government with the understanding it would require a financial sacrifice. She is in complete compliance with all ethical requirements of the administration," Douglass said.
“She gave it all up to come and work in a tiny cramped office on one of the most important issues the country is dealing with,” Douglass said. “She’s working seven days a week, not seeing her children and working incredibly long hours. She’s doing this because she is a dedicated public servant.”
The public may never get a full accounting of her actions on corporate boards. Although DeParle is the point person on Obama's effort to overhaul health care for all Americans, she didn’t have to face questions at a Senate confirmation hearing, because she's a White House staffer, not a Cabinet official.
DeParle, 52, was the first woman to be president of the student body at the University of Tennessee, a Rhodes Scholar, and graduated from Harvard Law School. She ran the Medicaid program in Tennessee before going to Washington. Since leaving the Clinton administration, in addition to serving on corporate boards she was a managing director of a private equity firm that invested in health care companies, a trustee of the Robert Wood Johnson Foundation, and held fellowships at two universities.
'Makes you more valuable'
Growing concern over fraud in the health care industry has led federal officials in recent years to warn directors that they must make “good faith” inquiries into business practices, particularly when there’s reason to suspect wrongdoing. Federal officials are requiring more rigorous oversight by board members of the effectiveness of a company’s formal plan for complying with federal laws and regulations.
“Having government experience is a plus. It is one of the things that make you more valuable,” said Lynn Shapiro Snyder, a Washington lawyer and corporate defense counsel.
In DeParle’s case, four corporations paid her a total of $533,189 last year for serving as a director, according to SEC filings. The year before, she made $549,322 from three board positions. Of the $6.6 million she made from 2001 to 2009, about $2.2 million came from directors’ fees, and $4.4 million from stock options and trades. Her DaVita shares made her at least $1.8 million, and she made $1 million when Triad Hospitals Inc., a Texas company, was sold in 2007.
DeParle’s White House financial disclosure form shows that in 2008 she received $1 million in salary and bonus from CCMP Capital Advisors, LLC, a private equity firm she joined in August 2006 as a managing director helping oversee health care investments. Those interests included a Medicare managed care plan and a start-up hospital chain. She resigned from the firm in March.
Her White House biography mentions that she had served on corporate boards, but doesn’t name any of them. Though it dwells on her government career, it states that she “also brings a unique industry perspective from her work in the private sector.”
The investigations and lawsuits are at odds with DeParle’s reputation in Washington as a progressive, highly respected health policy analyst. During the late 1990s, when she ran Medicare, she pushed hard to raise medical quality standards and to clamp down on fraud and waste in the massive federal health plan for the elderly.
“In my experience, she’s the one administrator who really was tuned into the fraud issue,” said William J. Mahon, a former director of the National Health Care Anti-Fraud Association. “She distinguished herself in putting fraud on the agenda.”
Other companies with much to gain
Whether DeParle’s time in the private sector will influence the shape of health care reform remains to be seen. But there’s no doubt that the decisions will have significant impact on the corporations she formerly served. The Obama administration’s decision to spend billions of dollars promoting the use of electronic medical records offers an example.
In an April 15 media briefing in Washington, DeParle mentioned electronic medical records twice, first saying that an electronic system will help prevent medical errors and ensure that patients get “the right treatments.”
In response to a question, she added: “We want to incentivize physicians to use electronic medical records in a meaningful way for better treatment, better care, more convenience, better administration in their offices.”
Nobody mentioned her lengthy relationship with the Cerner Corporation, a major manufacturer of electronic medical records software based in Kansas City. From May 2001 until the day after her White House appointment, DeParle served on the board at Cerner, which has not reported any investigations into its finances or business dealings in recent years.
DeParle earned at least $680,000 from director’s compensation and stock options while she was on the Cerner board.
From Investigative reporting workshop
This story was co-published by the Investigative Reporting Workshop and msnbc.com .
Nancy-Ann DeParle, President Barack Obama’s health policy czar, served as a director of corporations that faced scores of federal investigations, whistleblower lawsuits and other regulatory actions, according to government records reviewed by the Investigative Reporting Workshop at American University.
Photo by Jim Young/Reuters
President Obama introduces Nancy DeParle as director of White House Office on Health Policy Reform, March 2, 2009.
Several of the companies were investigated for alleged kickbacks or engaging in other illegal billing schemes, while others were accused of serious violations of federal quality standards, including one company that failed to warn patients of deadly problems with an implanted heart defibrillator. Several of the cases ended with substantial fines paid to the federal government, even though the companies admitted no wrongdoing.
In touting DeParle’s accomplishments when he appointed her in March, Obama didn’t mention the lucrative private-sector career she built since September 2000, when she left her government job running Medicare for the Clinton administration. Records show she earned more than $6.6 million since early 2001, according to a tally by the Investigative Reporting Workshop.
And the public wasn't told that much of that corporate career was built at companies that have frequently had to defend themselves against federal investigations. After leaving government, DeParle accepted director positions at half a dozen companies suspected of violating the very laws and regulations she had enforced for Medicare. Those companies got into further trouble on her watch as a director. Now she’s back in government as a leading voice in deciding the shape of health care reform. As director of the White House Office of Health Reform, DeParle is the point person in pushing for the administration's plans for changing health care and the ways Americans pay for it — changes in which her former companies have a great deal at stake.
Critics see DeParle’s re-emergence as a classic case of Washington “revolving door” syndrome, despite Obama’s suggestions that he would shut that door.
The administration faces a “balancing act,” said Steve Ellis of the nonpartisan Taxpayers for Common Sense. Obama must find leaders with the proper expertise, but who are “not so conflicted that they cannot engage in all facets of the debate.”
Advocates of a “single-payer” coverage plan say that DeParle may be indebted to the companies she served, and more broadly to the health care industry.
“This woman owes her fortune to the corporations that she is making decisions about,” said Dr. David Himmelstein, an associate professor of medicine at Harvard University and a co-founder of Physicians for a National Health Program.
“She cashed in really big on her previous role in government and made millions and millions of dollars. Then she divests and all of a sudden she’s Snow White. It’s ridiculous.”
Among DeParle’s corporate connections:
- DaVita Inc., which owns and operates kidney dialysis centers, has been the subject of several government probes into its billing and drug-prescribing practices, most recently in December by Justice Department investigators in Georgia. DeParle joined the DaVita board in May 2001 and resigned in July 2008 “to devote more time to her other business activities,” according to the company. She earned more than $2 million in compensation and stock sales, according to records at the Securities and Exchange Commission.
- Boston Scientific Corp. reported to the SEC that it received five state or federal subpoenas during 2008, including ones from the Justice Department and Health and Human Services, which oversees the Medicare agency. In addition, Defense Department criminal investigators are looking into the company’s “marketing interactions” with doctors at a U.S. Army hospital in Tacoma, Wash. DeParle joined the Boston Scientific board in April 2006 and resigned on March 4 of this year, two days after she was appointed to the White House post. She earned more than $1.4 million in compensation and stock sales from her years at Boston Scientific and a company it bought, the Guidant Corp.
- Guidant, which already was in legal trouble for failing to disclose 12 patient deaths when DeParle joined the board in 2001, has since then faced new problems. After a college student died in 2005 when his implanted defibrillator failed on a biking trip, his doctor told Congress that Guidant officials had known of similar problems for three years, but failed to tell the public.
Five of the corporations whose boards DeParle served on have paid a total of $566 million since 2003 to settle fraud or product liability cases, often involving tax dollars paid by Medicare.
Four signed “corporate integrity agreements” in which they promised to tighten oversight of their billing practices in exchange for the government agreeing not to take legal action to kick them out of the Medicare program.
“These raise eyebrows,” said Ellis, of Taxpayers for Common Sense. “These are things that have to be considered and evaluated.”
The White House did not make DeParle available for an interview about her corporate ties. Her spokeswoman, Linda Douglass, said the White House would not have time to answer questions about DeParle’s actions as a director. DeParle also declined interview requests from msnbc.com, which is co-publishing this article with the Investigative Reporting Workshop.
A director's responsibility
There is no reason to think that DeParle was directly involved in any of the actions that led to the investigations and sanctions. DeParle was a member of the board of directors of these companies, not the chief executive officer managing day-to-day operations. It is rare for directors to be held legally accountable for illegal dealings by management.
However, the 2002 Sarbanes-Oxley law, passed by Congress after the scandals at Enron and other companies, requires directors to be more aware of what is happening inside companies. Federal guidelines tell directors they should exercise even more oversight in health care firms.
Michael W. Peregrine, a corporate compliance lawyer in Chicago, said that while board members aren’t obligated to “ferret out wrongdoing,” they need to question management once they learn of regulatory problems and to “make sure something is being done about it. The board has to ask, ‘What the hell’s going on here?’”
At three companies — Guidant, DaVita and Specialty Laboratories — DeParle was not only a director but also served on board committees responsible for monitoring the companies' compliance with laws and regulations.
Publicly traded companies must disclose to shareholders the existence of investigations, enforcement actions or lawsuits that could affect their earnings. These filings, made with the Securities and Exchange Commission, often are short on specifics, including when the conduct that’s under investigation allegedly occurred. These investigations typically drag on for years.
It's therefore difficult to say in some cases whether DeParle's board service coincided with the company's suspicious conduct, or whether some of the conduct preceded her service but only came to light during her service.
In a few additional cases, DeParle joined companies that had already gotten into trouble, which can raise questions as well, according to a specialist in corporate governance.
For example, DeParle agreed to join the board of Guidant just days after it acknowledged it had covered up the deaths of 12 patients and more than 2,000 injuries caused by a faulty surgical device. She was on the board when the company pleaded guilty to 10 felony charges in the case, and paid $92 million in fines. The apparent cover-up in the separate case involving the implanted defibrillator came to light when DeParle had been on the board for two years.
And she joined the board of Boston Scientific about a year after it had paid $74 million to settle a federal criminal investigation into the company's delay in recalling a faulty heart device. No charges were brought, and the company no longer sells the product, called a stent. It also denied wrongdoing as part of the settlement with prosecutors.
Peregrine, the regulatory compliance lawyer, said potential directors should be “cautious” about joining the boards of companies with a history of clashing with regulators. Board members need to satisfy themselves that the organization has developed “a culture of compliance” with laws, he said.
‘A dedicated public servant’
DeParle resigned her corporate board positions upon taking the White House position, according to a financial disclosure form dated May 13 but only released by the White House on June 12. A handwritten note on the first page says that, as of June 4, “all conflicting assets have been divested.”
Her spokeswoman said DeParle has recused herself from any matters that might affect these companies, and has sold her stock in them at a “fairly substantial financial loss to herself and her family.” DeParle has “come into government with the understanding it would require a financial sacrifice. She is in complete compliance with all ethical requirements of the administration," Douglass said.
“She gave it all up to come and work in a tiny cramped office on one of the most important issues the country is dealing with,” Douglass said. “She’s working seven days a week, not seeing her children and working incredibly long hours. She’s doing this because she is a dedicated public servant.”
The public may never get a full accounting of her actions on corporate boards. Although DeParle is the point person on Obama's effort to overhaul health care for all Americans, she didn’t have to face questions at a Senate confirmation hearing, because she's a White House staffer, not a Cabinet official.
DeParle, 52, was the first woman to be president of the student body at the University of Tennessee, a Rhodes Scholar, and graduated from Harvard Law School. She ran the Medicaid program in Tennessee before going to Washington. Since leaving the Clinton administration, in addition to serving on corporate boards she was a managing director of a private equity firm that invested in health care companies, a trustee of the Robert Wood Johnson Foundation, and held fellowships at two universities.
'Makes you more valuable'
Growing concern over fraud in the health care industry has led federal officials in recent years to warn directors that they must make “good faith” inquiries into business practices, particularly when there’s reason to suspect wrongdoing. Federal officials are requiring more rigorous oversight by board members of the effectiveness of a company’s formal plan for complying with federal laws and regulations.
“Having government experience is a plus. It is one of the things that make you more valuable,” said Lynn Shapiro Snyder, a Washington lawyer and corporate defense counsel.
In DeParle’s case, four corporations paid her a total of $533,189 last year for serving as a director, according to SEC filings. The year before, she made $549,322 from three board positions. Of the $6.6 million she made from 2001 to 2009, about $2.2 million came from directors’ fees, and $4.4 million from stock options and trades. Her DaVita shares made her at least $1.8 million, and she made $1 million when Triad Hospitals Inc., a Texas company, was sold in 2007.
DeParle’s White House financial disclosure form shows that in 2008 she received $1 million in salary and bonus from CCMP Capital Advisors, LLC, a private equity firm she joined in August 2006 as a managing director helping oversee health care investments. Those interests included a Medicare managed care plan and a start-up hospital chain. She resigned from the firm in March.
Her White House biography mentions that she had served on corporate boards, but doesn’t name any of them. Though it dwells on her government career, it states that she “also brings a unique industry perspective from her work in the private sector.”
The investigations and lawsuits are at odds with DeParle’s reputation in Washington as a progressive, highly respected health policy analyst. During the late 1990s, when she ran Medicare, she pushed hard to raise medical quality standards and to clamp down on fraud and waste in the massive federal health plan for the elderly.
“In my experience, she’s the one administrator who really was tuned into the fraud issue,” said William J. Mahon, a former director of the National Health Care Anti-Fraud Association. “She distinguished herself in putting fraud on the agenda.”
Other companies with much to gain
Whether DeParle’s time in the private sector will influence the shape of health care reform remains to be seen. But there’s no doubt that the decisions will have significant impact on the corporations she formerly served. The Obama administration’s decision to spend billions of dollars promoting the use of electronic medical records offers an example.
In an April 15 media briefing in Washington, DeParle mentioned electronic medical records twice, first saying that an electronic system will help prevent medical errors and ensure that patients get “the right treatments.”
In response to a question, she added: “We want to incentivize physicians to use electronic medical records in a meaningful way for better treatment, better care, more convenience, better administration in their offices.”
Nobody mentioned her lengthy relationship with the Cerner Corporation, a major manufacturer of electronic medical records software based in Kansas City. From May 2001 until the day after her White House appointment, DeParle served on the board at Cerner, which has not reported any investigations into its finances or business dealings in recent years.
DeParle earned at least $680,000 from director’s compensation and stock options while she was on the Cerner board.
Details of DeParle's industry connections
Thursday, July 2nd, 2009
The DeParle Portfolio
| Company | Board service | Directors' fees | Stock profits | Total | Notes |
|---|---|---|---|---|---|
| Accredo Health Inc. | November 2002 -August 2005 | $35,0001 | See notes | $35,000 | Accredo merged with Medco in August 2005. According to SEC filings, at the merger, DeParle traded options she held in Accredo for options to buy 72,579 Medco shares. At the time of the merger, the shares would have been worth $3.5 million, netting a profit of more than $900,000 based on the option prices. There is no public record of whether or when she exercised those options and disposed of the shares. |
| Boston Scientific Corp. | April 2006 -March 2009 | $174,808 | $872,861 | $1,047,669 | Most of DeParle's profits came on shares she received while she was a director of Guidant Corp., which Boston Scientific acquired in 2006. According to most recent company report, DeParle held 13,886 shares when she left the board. Boston Scientific traded for $6.78 a share on March 3, giving DeParle a potential $94,000 in proceeds if she sold the stock at that point. |
| Cerner Corp. | May 2001 -March 2009 | $289,250 | $392,489 | $681,739 | According to most recent company report, when she left the board DeParle held 16,000 shares and options to purchase another 16,600 shares. Rights to acquire 13,300 of those shares could have been exercised at any time after April 2006. Her option price was $15.47 a share. On March 3, the stock closed at $34.87 a share. If she sold on that date, her potential profit was $258,000. There is no public record as to whether she exercised those options. The options on the other 3,300 shares were exercisable after May 2009. |
| CCMP Capital Partners | August 2006 -March 2009 | $1,000,000 | See notes | $1,000,000 | This information comes from DeParle's federal financial disclosure statement filed May 2009. According to the statement, it covers 2008 and 2009. |
| DaVita Inc. | May 2001 -July 2008 | $279,000 | $1,799,942 | $2,078,942 | According to the most recent company report, DeParle held 3,256 shares when she left the board. On the day she left the board, DaVita closed at $56.66 a share, giving her potential proceeds of $184,500. There is no public record as to whether or when she disposed of these shares. Additionally, she held stock appreciation rights to 12,000 shares at $49.78 a share; those rights did not vest until June 9, 2009. |
| Guidant Corp. | May 2001 -April 2006 | $108,0001 | $331,865 | $367,865 | Guidant merged with Boston Scientific in April 2006. |
| Medco Health Solutions Inc. | October 2008 -March 2009 | $13,500 | See notes | $13,500 | According to the most recent company report, when she left the board DeParle held options to purchase 2,300 shares. The options could not be exercised before Oct. 22, 2009. |
| Specialty Laboratories Inc. | April 2001 -June 2004 | $66,0001 | See notes | $66,000 | According to the most recent company report, when she left the board DeParle had options to purchase 11,000 shares. There is no public record as to whether or when she exercised the options and disposed ot the stock. |
| Triad Hospitals Inc. | July 2001 -July 2007 | $183,0001 | $1,059,205 | $1,242,205 | Triad merged with Community Health Systems in July 2007 after turning down an offer from CCMP, where DeParle also worked, and Goldman Sachs. At the merger, her options were converted to cash payments totaling $1.05 million. |
| Totals | $2,148,558 | $4,456,362 | $6,604,920 |
Companies deal with legal issues
Thursday, July 2nd, 2009
After Nancy Ann DeParle resigned as head of the federal Medicare program in late September 2000, she joined the boards of several companies investigated by government regulators. Here are some examples.
DaVita reported billing investigations
About nine months after she left government, DeParle joined the board at DaVita, which owns and operates kidney dialysis clinics and draws about 60 percent of its revenues from Medicare. At least one other former Medicare chief also has served as a DaVita director after leaving government. Richard Grenell, DaVita senior vice president of corporate communications, said the firm seeks out board members with a “variety of expertise.”
In announcing DeParle’s appointment, DaVita chairman Kent Thiry said she would help the company “work towards achieving our objective of a more constructive partnership with the federal government.”
DaVita grew dramatically during DeParle’s nearly seven-year board tenure, in part from gobbling up a competitor. In October 2005, it purchased troubled Gambro Healthcare, which had paid $350 million to settle a Medicare fraud case in December 2004. As part of the deal, DaVita assumed responsibility for a corporate integrity agreement which Gambro signed with the government. DaVita also inherited more than two dozen lawsuits alleging that corporate negligence by Gambro had contributed to patient deaths. In the lawsuits, patients’ families asserted that top Gambro officials failed to control contaminants that could infect and even kill dialysis patients. Gambro corporate documents, which the families of deceased patients say support their negligence claims, remain under court seal. DaVita denies the allegations and is fighting the cases.
DaVita also has come under fire from regulators over its billing practices. Since late 2004, the company has received subpoenas from U.S. Attorneys in Texas, Georgia, Missouri and New York as part of federal investigations ranging from drug billings to its “financial relationships with physicians,” according to SEC filings. In May, DaVita announced that the New York investigation had been closed without “any action against the company.” Grenell, the DaVita spokesman, said he could not comment on any ongoing investigations.
Guidant admitted covering up patient deaths
The Guidant Corporation was in trouble with regulators when its directors nominated DeParle for a board seat on March 27, 2001. She also joined its committee on compliance with federal safety laws. Guidant President Ronald W. Dollens said her “proven track record” in government would “enhance Guidant's understanding of the environment in which we operate to the benefit of our shareholders and the patients who benefit around the world from Guidant’s life saving and life enhancing medical innovations.”
Four days earlier, the Indianapolis firm had acknowledged it covered up safety problems of one of its most successful products known as the Ancure Endograph System, including the fact that some deaths had been associated with the device. Surgeons implanted the device into a patient’s body to guard against abdominal aortic aneurysms, a life-threatening condition associated with people with heart disease.
Guidant paid $92.4 million in fines in the July 2003 criminal case against its subsidiary, Endovascular Technologies Inc. It was then the largest penalty ever levied for concealing safety problems from the U.S. Food and Drug Administration. The events started in July 2000, when the company lied to a government inspector about the number of deaths and injuries. Guidant signed a five-year agreement with the government to comply with all laws as part of the plea agreement. Settling thousands of civil suits from patients claiming injuries eventually cost Guidant about $240 million.
The company admitted that it failed to file 2,623 reports of serious injuries from the Ancure device to the FDA as required by law. Among those cases were 12 deaths and 57 emergency surgeries, when the device became stuck in the patient’s stomach and could not be removed without slicing open the aorta, according to federal prosecutors.
During DeParle’s board tenure, allegations that Guidant also concealed dangerous flaws in another of its devices surfaced after the death of a Minnesota college student in March 2005. Joshua Oukrop, 21, collapsed and died in Utah during a Spring Break biking trip with his girlfriend after an implanted Guidant defibrillator short circuited. Oukrop’s heart doctor later testified at a Congressional hearing that Guidant officials told him they knew of similar problems as many as three years before Oukrop’s death, but never warned doctors or patients. The company disclosed the problems to the FDA, along with a partial recall of the defibrillators, as The New York Times was preparing an article on the safety problems.
When the company was sold to Boston Scientific Corp., another medical device manufacturer, DeParle joined its board. The company says in SEC filings that it is cooperating with the Defense Department criminal investigators looking into “marketing interactions” with Army doctors. “We don’t plan to comment any further,” said Paul Donovan, Boston Scientific senior vice president for corporate communications.
DeParle joined the Boston Scientific board in April 2006 and resigned from it on March 4 of this year, when she was appointed to the White House post. She earned more than $1.4 million in compensation and stock sales from her years at Guidant and Boston Scientific.
Whistleblowers sue Medco Health Solutions over billing
When DeParle joined the board of Medco Health Solutions late last year, she called it “an exciting company that is leveraging technology and innovation to help reduce health care costs and improve the quality of care.” Medco CEO David B. Snow Jr. said DeParle would make a “perfect addition” to the board because of her “extensive experience managing the nation’s health care system, combined with her legal and financial expertise.”
But Medco also has drawn fire for its business practices, including the three pending whistleblower lawsuits that remain under court seal. One Pennsylvania case revolves around alleged billing irregularities. Another filed in New Jersey accuses the company of duplicate billing and other suspect financial dealings, including charging for prescriptions written by unlicensed doctors, according to SEC records.
The third whistleblower case involves the Medco subsidiary PolyMedica, which sells diabetes testing supplies to people on Medicare. In February, Medco disclosed receipt of a subpoena from the HHS Office of Inspector General about that case and said it was cooperating with the investigation. Medco did not make a spokesperson available to comment on the cases, but referred a reporter to the company’s SEC filings. In those filings, the company said that court orders prohibit it from discussing the whistleblower cases any further.
Specialty Laboratories facing state suit over alleged kickbacks
DeParle joined the board of Specialty Laboratories Inc., a California medical testing company, in April 2001. Two months later, lab inspectors caught the company using unlicensed personnel at its Santa Monica site. Officials suspended Medicare payments and threatened to revoke Specialty’s license to operate. The company corrected the deficiencies, but agreed to pay a $700,000 fine in 2002 to resolve the case. DeParle left Specialty’s board in June 2004.
Specialty also is among seven labs sued this February by California Attorney General Edmund G. Brown. The lawsuit, pending in San Mateo Superior Court, seeks to recover hundreds of millions of dollars for the state’s Medicaid program for what Brown termed “massive…fraud and kickbacks” over the past 15 years. The company has denied the allegations. Wendy H. Bost, a spokeswoman for Quest Diagnostics, which acquired Specialty Laboratories in 2007, said its services “were priced appropriately, and we intend to vigorously defend ourselves in the case.”
Health overhaul means big Medicare changes
If you're not a Medicare recipient, your parents probably are, or soon will be. And you yourself will be on Medicare eventually.
That’s a good reason to pay attention as Congress debates an overhaul of America’s health insurance system — because this debate is inevitably a debate over Medicare, the federal government’s biggest health spending program at $500 billion a year.
Medicare is big, and it’s going to get much bigger: Between 2010 and 2030, the number of people on Medicare is projected to rise from 46 million to 78 million, according to the Kaiser Family Foundation.
Over the long term, the program is underfunded. According to the Medicare trustees, it would take an immediate 134 percent increase in the Medicare tax rate, or an immediate 53 percent cut in spending, to bring Medicare’s hospital insurance program into long-term fiscal balance.
The cost savings which President Barack Obama says are urgently needed won’t be possible without cutting Medicare’s outlays, which have kept growing annually at a pace more than two percent faster than the economy.
Cutting payments to hospitals and nursing facilities
Obama has proposed policy changes which his budget director Peter Orszag says will cut more than $200 billion over ten years from Medicare, partly by requiring hospitals, hospices, outpatient clinics, and skilled nursing facilities to become more efficient by meeting certain productivity benchmarks.
“To the extent that we’re trying to find savings within the federal budget to offset the cost of health reform, Medicare is obvious place to go because it is so large,” said economist Paul Van de Water, a health care policy expert at the liberal Center on Budget and Policy Priorities in Washington.
If you look at the health care bill proposed by House Democrats you will see how large a part of the overhaul is focused on Medicare, which accounts for 478 pages — or well more than half — of the 850-page House proposal.
The House Democratic proposal would decrease overpayments to private plans operating under the Medicare and would aim to improve payment accuracy to ensure that doctors and other medical providers were not over paid.
It would also eliminate the gap in Medicare prescription drug coverage by closing the “doughnut hole,” the coverage gap in the drug plan before Medicare recipients reach the threshold for catastrophic coverage.
In the current debate, which is ostensibly about health insurance, what sometimes goes unmentioned is that Medicare isn’t an insurance program in the classic model of a pooling of risks.
In a traditional insurance system, members of a risk pool pay premiums. The risks of any of them having expensive claims to be paid in any given year are averaged out.
Not a traditional insurance model
But Medicare is an income transfer program that taxes workers to pay for care for 45 million people who are elderly or disabled.
While Medicare beneficiaries do pay premiums for their coverage, most of the program’s cost is borne by people under age 65, who themselves will qualify to become Medicare recipients once they reach age 65.
As policy analyst Juliette Cubanski of the Kaiser Family Foundation pointed out in a panel discussion sponsored by the Alliance for Health Reform, the Medicare population “tends to be sicker and have greater health needs than others. Over one third have three or more chronic conditions and 29 percent have a cognitive or mental impairment.”
“The uncertainty regarding health care costs among those over age 65 is more a matter of ‘when’ than ‘if,’” said economist Arnold Kling in his book Crisis of Abundance: Rethinking How We Pay for Health Care.
People in Medicare often have a costly medical event or illness such as a stroke or cancer before they die. “If high expenditures on health care before death are nearly inevitable, then real insurance is not possible,” he argued.
But Van de Water said the differences between Medicare and traditional insurance models are less significant than the similarities of federal health spending and private-sector spending.
“Obviously Medicare is a social insurance program which has some similarities and some very important differences from other types of insurance,” Van de Water said. “But people often don’t recognize the similarities” between insurance for younger people and the insurance provided by Medicare.
“For example, the trends in Medicare spending have been exactly the same as those for the rest of the health sector,” Van de Water said. For the past 30 years, both in government and in private-sector health care, spending has been increasing annually 2.8 percent faster, on average, than the rest of the economy.
Medicare recipients not that different
And the reason for the similar spending patterns, said Van de Water, is that “doctors basically practice one kind of medicine. Even if older people have more health problems, and have certain problems that younger people don’t have, a lot of them are the same problems; they don’t just all of sudden appear at age 65.”
Opinion polls already reveal an anxiety among older people that the Democrat’s proposed changes may hurt their Medicare coverage.
A June 19-22 survey of 1,000 voters by the Democratic-aligned polling firm Greenberg Quinlan Rosner found that when the Democrats’ insurance reform plan was described to respondents under age 65, 54 percent of them supported the proposal. But 54 percent of seniors in the Greenberg Quinlan sample opposed the Democratic plan.
A survey this month of 1,205 adults by the Kaiser Family Foundation showed similar jitters among older Americans.
The survey asked whether — as one way to help pay for health care reform — respondents would favor limiting increases in Medicare payments to doctors and hospitals.
A majority, 56 percent, of those under age 65 supported such limits on payments, while 35 percent opposed them.
But people over age 65 were opposed to such payment limits, 48 percent to 40 percent.
How to reassure older voters
In its advice to Democrats on how to persuade skeptical seniors, Greenberg Quinlan Rosner said older people needed to hear “not only that their Medicare coverage will not be undermined but that the plan also provides them with some tangible new benefits” such as expanding prescription drug coverage by closing the Medicare “doughnut hole.”
Van de Water said filling the doughnut hole is “not the best policy in the world, but it may be the best politics.”
He said, “The doughnut hole is not a good benefit design, but filling it costs money and it’s not clear that further expanding the drug benefit is the top problem system-wide. But it is important to Medicare beneficiaries who see the potential of being made at least modestly worse off in some respects” by proposed reforms.
“Right now not that many details have filtered down to the average person answering a poll,” said the Kaiser Family Foundation's Cubanski in an interview with msnbc.com Tuesday. “What people might be hearing is ‘we’re going to make cuts in Medicare’ — without knowing any of the specifics about what those cuts really are and what they would mean for beneficiaries.”
She added, “Some of the proposed reforms — such as bundling payments to hospitals and other providers — are potential ways to bring greater efficiency to the way Medicare benefits are paid for. I don’t think it’s clear at this point what the effect on beneficiaries would be with some of these changes. Beneficiaries might not actually see much in the way of a tangible change in their benefits or a change in which doctor they see.”
On the other hand, when the CBO last year analyzed the type of cuts in payments to hospitals and skilled nursing facilities that Orszag has proposed, it warned that such cuts “might cause some providers to lower the quality of care they provided or to stop serving Medicare beneficiaries altogether.”
The key word here is might.
How skillful Democratic leaders are in reassuring seniors about such uncertainties may determine whether they get the support they need to push an insurance overhaul to final enactment.
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