For the first time, the HHS Office of Inspector General has imposed a corporate integrity agreement (CIA) that requires a company — in this case, GlaxoSmithKline — to take away bonuses from noncompliant employees. The CIA, which is part of GlaxoSmithKline’s $3 billion fraud settlement, includes an “executive financial recoupment program” that puts three years of performance pay at risk of forfeiture if executives or their subordinates engage in “significant misconduct.”

GlaxoSmithKline agreed to plead guilty to three counts in the criminal information and resolve false claims allegations in what the Department of Justice called “the largest health fraud settlement in U.S. history,” according to its July 2 announcement. The pharmaceutical giant pleaded guilty to two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about Avandia to the Food and Drug Administration. GlaxoSmithKline also settled false claims allegations relating to the promotion of certain drugs for off-label uses and paying kickbacks to physicians to prescribe certain drugs (see story, p. 4). GlaxoSmithKline denied liability in the settlement.

In addition to the enormous fines, GlaxoSmithKline is bound by the terms of a five-year CIA and what the OIG calls its “novel” provisions. GlaxoSmithKline is essentially required to put its executives’ money where their mouths are. If they repeat the kind of behavior that got the company in trouble, they will lose large chunks of their paychecks.

For example, the CIA requires policies and procedures that ensure financial incentives don’t inappropriately encourage certain employees and contractors from participating in “improper promotion, sales, and marketing of [GlaxoSmithKline’s] Government Reimbursed Products.” And there must be policies and procedures on mechanisms to carve out sales for off-label drugs from incentive compensation.

‘Triggering Events’ Cannot Be Rewarded

The CIA also requires GlaxoSmithKline to abide by the new executive financial recoupment program. It’s a detailed system to prevent the payment of annual cash bonuses to executives who engage in “significant misconduct” — known as “the triggering event”— and to recover them when misconduct occurs. The CIA defines a triggering event as “a significant event” such as violating a law, regulation or GlaxoSmithKline policy that renders the executive ineligible for an annual bonus or “significant misconduct by subordinate employees in the business unit over which [the executive had responsibility]” as long as it’s not an isolated event.

Executives and their subordinates could lose an amount equal to three years of annual performance pay. And they won’t be off the hook just because their malfeasance isn’t discovered promptly. “These bonus eligibility and repayment conditions will survive the payment of the Covered Executive’s bonus and the separation of the Covered Executive’s employment for a period of 3 years from the payment of the bonus for the plan year,” the CIA states.

Linking compensation directly to compliance may have a greater effect on corporate culture than other carrots and sticks, one lawyer says. “The CIA and its incentive provisions are much more likely to produce changes in the organization and compliant organizational behavior” than sending executives to jail or excluding them from federal health programs, says Fort Lauderdale attorney Gabe Imperato, with Broad and Cassel, who was not involved in the GlaxoSmithKline case. Money is the universal motivator, he notes, and incorporating it into everything from performance evaluations to CIAs is the government’s best shot at reducing fraud and abuse, he says. “But I don’t want to minimize the challenge. I have clients with great compliance programs who have [trouble] penetrating the behavior at middle-management levels.” Sometimes managers are inscrutable, and it’s hard to know what’s going on in departments, Imperato says. He tries to remind health care organizations that these days, “you are operating in a fishbowl, so you better know what your fish are doing.” That’s partly what auditing and monitoring are about.

Not everyone agrees that convictions won’t change the corporate culture. Prosecutors have been promoting the idea that it’s time to turn up the heat on executives. Settlement after settlement, the federal government is coming to the conclusion that enforcement initiatives are not adequately deterring noncompliance by organizations and that it’s time to prosecute or exclude more executives (RMC 10/10/11, p. 1).

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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