The DeParle Portfolio

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.”