1

Case StudiesCase Studies

Conflicts with Former Employees by Mauri MyersConflicts with Former Employees by Mauri Myers

Gifts & Entertainment by Paula SaddlerGifts & Entertainment by Paula Saddler

About the presentersAbout the presenters

•• Mauri MyersMauri Myers

–– Interim Director of U.S. Interim Director of U.S.

Ethics for Walmart Ethics for Walmart

Stores, Inc.Stores, Inc.

–– Background in Internal Background in Internal

AuditAudit

–– CCEPCCEP

•• Paula SaddlerPaula Saddler

–– Former United Nations Former United Nations

Ethics OfficerEthics Officer

–– ConsultantConsultant

–– CCEPCCEP

2

Conflicts of Interest with Former Conflicts of Interest with Former

EmployeesEmployees

•• The The ““Revolving DoorRevolving Door””

•• Employees terminated for gross misconductEmployees terminated for gross misconduct

The Revolving DoorThe Revolving Door

•• What is it?What is it?

•• Why should organizations have controls in Why should organizations have controls in

place?place?

•• What controls can they use?What controls can they use?

3

Employees terminated for gross Employees terminated for gross

misconductmisconduct

•• Case StudyCase Study

•• Safeguards your organization can put in place Safeguards your organization can put in place for preventionfor prevention

–– If egregious enough, partner with police to trespass If egregious enough, partner with police to trespass the person from your facilitiesthe person from your facilities

–– Run an internal inquiry on new vendorsRun an internal inquiry on new vendors

Gifts & Entertainment

Case Studies Presented at the SCCE

Annual Conference

September 2009 by

Paula Saddler

4

Off-Site Business Event

What Can Go Wrong… AIG

U.S. Seizes Control of AIG

With $85 Billion

Emergency Loan

• Insurer's Wide Reach

Justifies Intervention, Fed

Says

The Moment

Isn’t Right

5

Abuse or Reward?

A few days after the federal government

unveiled an $85 billion bailout package for

the insurance company AIG, executives

from one of the firm's subsidiaries went

on a week-long retreat to the St. Regis

Resort in Monarch Beach, Calif.

Cost - $443,000.

GIFTS? ENTERTAINMENT?

What are Gifts and Entertainment?

6

ENTERTAINMENT

What are Gifts?

• Physical objects, devices, or

services.

• Gifts are given:

• voluntarily

• without compensation by

one person to another.

Gift

7

A Gift is

• Gratuity, favor, discount,

entertainment

• Hospitality, loan,

forbearance, or other item

that has a monetary value.

• Services - training,

transportation, local travel,

lodgings and meals,

whether provided in-kind,

by purchase of a ticket,

payment in advance

U.S. Federal Government Defines a

Gift as:

A Gift is Not

8

A GIFT IS NOT

• Rewards and prizes given

to competitors in contests

or events open to the

public unless the

employee's entry into the

contest or event is required

as part of his official duties

Plaques, Certificates…

Who gives and receives Gifts and Entertainment?

Research Opinions

9

From To Purpose Target Recipient

Vendors Clients - Employing Organization that purchases goods/services offered by a vendor

Build Good Will & Relationships “Thank You”

Individual employees of Client Department Entire Organization

Vendors Government - domestic departments within government that buy the good or service

Build Good Will & Relationships “Thank You”

High Ranking officials of a government department

Vendors Foreign Governments Build Good Will & Relationships

High Ranking officials of a foreign government

Employer Employees of same organization Foster cooperation - sense of loyalty to employer Incentives/Reward

Individual employees of a department or work group

Non Profits Clients - Employing Organization Build Good Will & Relationships

Individual employees of Client

Research on Effect of Receiving a Gift

• Although most physicians

believe that free lunches,

subsidized trips, or gifts

have no effect on their

medical judgment, the

research has shown that

these types of perquisites

can affect, often

unconsciously, how

humans act.

Vacations and Trips - JAMA

10

Conflict of Interest ?

• As the American Academy

of Orthopaedic Surgeons

observed, “[w]hen an

orthopaedic surgeon

receives anything of

significant value from

industry, a potential

conflict exists which should

be disclosed to the

patient.”

Surgeon receiving gifts

HEALTH CARE INVESTIGATIONS

11

US Senate Spotlight on G&E

• US Senate investigates financial relationships

between the medical device industry,

surgeons and physicians. February 2008

• Abuses found between medical device

companies & surgeons

• substantial payments, in form of consultant

fees, educational grants, royalties, funding for

clinical trials, and travel and gifts

New Jersey Investigation of Hip and Knee Device Manufacturers (2007)

Zimmer, Inc., DePuy

Orthopaedics, Inc., Biomet

Inc., Smith & Nephew, Inc

four major medical device

manufacturers entered

into civil settlement

agreements with the

Government collectively

totaling $311 million to

resolve allegations under

the False Claims Act.

12

Hip & Knee Manufacturers -Allegations

• four companies provided financial incentives

– consulting agreements

– lavish trips, and other perks to

• induce physicians to use a particular

company’s artificial hip and knee

reconstruction and replacement products.

Hip & Knee Manufacturers -Settlement

• To avoid criminal prosecution, the companies each entered into an:

• 18-month Deferred Prosecution Agreement (DPA) with the United States Attorney’s Office in New Jersey. Under the DPAs, the companies agreed to:

• be subject to oversight by a Federal monitor appointed by the U.S. Attorney, to disclose any other bad acts, and

• to post on their Web sites the names of company consultants, along with payments made to those consultants.

13

Hip & Knee Manufacturers -

Settlement

• To avoid criminal prosecution, the companies each entered into an:

• A Corporate Integrity Agreement (CIA) with OIG in exchange for OIG releasing its exclusion authority.

• Put in place compliance systems, be subject to monitoring by an independent review organization and OIG, and make periodic reports for a 5-year period.

ANS – Marketing/Kickbacks

• Allegations:

• Advanced Neuromodulation Systems, Inc.

(ANS), a device company specializing in spinal

cord stimulation. OIG alleged that ANS

engaged in a marketing program in which it

paid a number of physicians $5,000 for every

five new patients tested with an ANS product.

14

ANS – Gifts & Entertainment

• Allegations• ANS’s sales and marketing personnel provided

physicians with sports tickets, trips for physicians and their families, dinners, and other gifts.

• ANS sponsored 3-day conferences at resort locations (Napa Valley, Alaska, Colorado Springs) where physicians participated in roundtable discussions.

• Much time at conferences was spent on recreational activities, wine tasting, skiing, golfing, and canoeing.

• Physicians’ spouses and children were invited to these conferences and participated in recreational activities at the expense of ANS.

ANS – Settlement of Allegations

• In July 2007, OIG entered into a kickback

CMP settlement with Advanced

Neuromodulation Systems, Inc. (ANS),

• To resolve allegations of kickbacks, ANS

paid $2.95 million in a CMP settlement

and entered into a 3-year Corporate

Integrity Agreement with OIG.

15

Kickback - Gifts & Entertainment

Paid kickbacks to spine surgeons to induce them to choose devices marketed by a Medtronic subsidiary specializing in spinal implant devices

Kickbacks in form of consulting and royalty agreements for which little or no work was performed

Trips for doctors, their spouses, families, or girlfriends;

Consultant meetings held at lavish venues; and company-sponsored adult entertainment.

Medtronic – Settlement of

Allegations

• In July 2006, Medtronic agreed to pay $40

million to settle the False Claims Act case and

• Agreed to enter into a 5-year Corporate

Integrity Agreement.

16

TAP Pharmaceutical

• TAP Pharmaceutical Products Inc

• TAP pled guilty to participating in a criminal

conspiracy by providing doctors with free

Lupron samples - for which doctors then

billed Medicare. (October 3, 2001)

• TAP paid $885 million in 2001 for that crime &

to settle civil charges

TAP Pharmaceutical

• Whistleblower – the medical director for

pharmacy programs at Tufts Health Plan in

Massachusetts alerted the U.S. Attorney in

Boston that he had been offered a $65,000

"educational grant," to be used for any

purpose, to switch the plan from Zoladex to

Lupron, as well as the opportunity to be

reimbursed by the government at a price

higher than that paid to TAP.

17

TAP Gifts/Entertainment

• Dept of Justice continued investigation into

employees of TAP & physicians who received

kickbacks, G & E.

• In 2004, prosecutors filed criminal charges

against 11 key TAP employees, including its

vice president for sales.

TAP Gifts/Entertainment

• Business as Usual

• 11 TAP employees pled not guilty to charges –

• Alleged that common practice to give gifts and

sponsor seminars

• Govt alleged that clinics demanded gifts from

TAP – Christmas party, golf tournaments,

seminars, free drug samples.

18

TAP – Settlement

• Corporate Integrity Agreement for 7 years

• Compliance program

• CIA requires annual review by an independent

consultant of all of TAP’s sales and marketing-

related activities,

TAP Settlement-Marketing Review

• Independent Review of:

• sponsorship of speaking engagements, meetings or other events;

• educational or research grants;

• third-party advice about reimbursement or claims submissions;

• gifts, payments for business courtesies, customer assistance programs, debt forgiveness or reduction and free samples.

19

TAP Settlement-Marketing Review

• Independent Review of:

• Drug price reporting & documents

HEALTH CARE INDUSTRY

SELF REGULATION

Health Care Industry Self Regulation

20

Health Care – Self Regulation

Revised Marketing Code

• Announced July 10, 2008

• Becomes effective

January 1, 2009

• Builds on earlier code

adopted in 2002

Effective 1 January 2009

21

Revised Marketing Code

• Announced

December 18, 2008

• Effective July 1, 2009

• Updates previous

AdvaMed Code (2005)

July 1, 2009

Business Meetings-

Promotion

Meeting topics – sales,

promotions, business

purposes – discuss

medical technology

features, sales, terms,

or contracts are O.K.

AdvaMed Legitimate Promo Meeting

O.K.

22

Modest Meals/HCP Inter-

Actions • Modest meals occasional business courtesy

• Purpose – not to build good will

• Setting & Location for business

• Participants – HCPs must attend

AdvaMed + PHARMA Modest Meals

Promotion – Travel &

Guests•Travel Costs –

Companies can pay reasonable travel costs of attendees for plant tours or demos (AdvaMed)

• HCP Guests – No spouses or other guests (PhRma) unless there is a bona fide professional interest (AdvaMed)

Public Transport is O.K.

23

Entertainment/Recreation

• No E & R for non employee HCPs

• No theatre, sporting events, golf, skiing,

hunting, sporting equipment & leisure or

vacation trips

• No matter the value, whether HCP is

speaker/consultant, or E is secondary to

educational purpose

Educational Items – No Gifts

• Patient Benefit, Educational Function

• $100 Cap (Fair Market Value)

• HCP Benefit

• No Branded Items

• No Food/Cash

• No Gifts to Office Staff

24

Educational Items – No Gifts

• No Gifts for Significant Life Events

• No Raffles (AdvaMed)

• Examples of Patient Benefit Items

AdvaMed FAQ 42

PhRMA Code No Promos

• Prohibits giving non-

educational items:

• No pens, mugs and

other “reminder”

objects typically

adorned with a

company or product

logo) to healthcare

providers and their

staff.

25

Health Industry Compliance

•Code Compliance

• Certification

• Compliance Contact Information

• 7 Elements of Compliance Program

7 Elements of Compliance Program

a. Written policies and procedures;

b. Compliance officer and committee;

c. Train and educate effectively;

d. Effective lines of communication (including an anonymous reporting function);

e. Internal monitoring and auditing;

f. Publicize disciplinary guidelines;

g. Prompt response to & correct problems

26

External Verification

• Encourages external verification periodically

(i.e., at least every three years)

• (PhRMA intends to issue guidance for

external verification and

• identify on its web site if a company has

• sought and obtained verification of its

compliance policies and procedures from an

external source.

Health Care Industry

GOVERNMENT Regulation

27

OIG HHS – Draft Compliance

Guidance

• In 2002 OIG recognized the PhRMA Code as

an industry ethics standard.

• While the Guidance fell short of implicit

adoption of the PhRMA Code as a safe harbor,

OIG expressly "recommends" compliance

OIG HHS – Draft Guidance 4 Issues

• 4 issues for reviewing “other remuneration”

• 1. "Is the gift/ benefit made to a person who can generate or influence business for the paying party?

• 2. Does the gift/benefit take into account, directly or indirectly, the volume or value of business generated (e.g., is the payment or gift only given to persons who have prescribed or agree to prescribe the product)?

28

OIG HHS – Draft Guidance – 4 Issues

• 4 issues review- “other remuneration”

• 3. Is the gift/benefit more than nominal in value and/or does it exceed the fair market value of any legitimate service rendered to payer?

• 4. Is the gift/benefit unrelated to any services at all other than the referral of Federal health care business?"

FEDERAL SUN SHINE BILL• Voluntary Codes by Industry

• Compliance still needed to Code of Ethics

• Senators Chuck Grassley & Herbert Kohl

• Introduced a bill - Physician Payment Sunshine Act-Sept 07

• Creates a national database of payments & gifts to physicians from a variety of medical sources

29

FEDERAL SUN SHINE BILL

• Applies to manufacturers with $100 million +

in annual gross revenues.

• Penalties for not reporting payments would

range from $10,000 to $100,000/ violation.

• Secretary of Health and Human Services will

create a website and post payment

information in a clear and understandable

manner.

State Sunshine Laws

30

FINANCIAL SERVICES

CASES

FINANCIAL SERVICES - CASES

Securities Industry – Fidelity Case

• Jefferies – Brokerage Firm gave 1

broker a T & E Allowance of $1.5

million per year (2004)

• Jefferies broker, Kevin Quinn,

entertained Fidelity traders and

increased Jefferies' brokerage

business with Fidelity. (1.7 to 24 mil)

31

Gifts to Fidelity traders

• Jefferies (through Quinn) lavished one Fidelity trader with private chartered flights to Bermuda, Los Angeles, Florida, and Puerto Rico, at a cost of more than $140,000.

• In 2002, Quinn gave another Fidelity trader $19,000 worth of tickets to the Wimbledon tennis championships in London, along with eight bottles of wine valued at $5,900.

• another Fidelity trader was given a $47,000 private chartered flight to the Turks and Caicos Islands.

Gifts to Fidelity traders – Who?

• Peter Lynch – Advisory Board

• Bart A. Grenier–Senior Vice

President

• Scott E. DeSano – Supervised

Domestic Equity Trading Desk

• Thomas H. Bruderman – Health Care

& pharmaceutical stock

• 9 other traders

32

Fidelity Case – Payor Fines

• Payor fines for excessive G & E

• FINES assessed in January 2007

• NASD -fined firm Jefferies $5.5 m

• SEC -fined Jefferies firm 4.2 m

Total fine for Jefferies 9.7 m

Fines for Recipient - Fidelity

• Fines to recipient for excessive G & E

• SEC -fined Fidelity 8 million

33

Employees Violated Fidelity Policy

• Fidelity Executives and Traders Received

Travel, Entertainment and Gifts from Brokers

Seeking and Obtaining Securities

Transactions for Fidelity’s Clients

• Violation of Section 17(e)(1) of the

Investment Company Act

• Fidelity Failed Reasonably to Supervise

its Employees’ Receipt of Travel,

Entertainment and Gifts from Brokers

Employees Violated Fidelity Policy

• DeSano Failed Reasonably to Supervise the Traders’ Receipt of Travel, Entertainment and Gifts from Brokers

• DeSano’s and Traders’ Violations of Fidelity’s Gifts and Gratuities Policy

• Policy prohibited employees from giving or receiving anything of value > 100 per calendar year

• Written approval for anything > 100

34

Employees Violated Fidelity Policy

• Fidelity Traders Sent Securities

Transactions to Brokers from Whom They

Received Travel, Entertainment, and Gifts

Employees Violated Fidelity Policy

• Fidelity Failed to Seek Best Execution for

its Clients’ Securities Transactions

Because the Traders Allowed the Receipt

of Travel, Entertainment and Gifts from

Brokers, and Familial and Romantic

Relationships with Brokers, to Influence

their Selection of Brokers

35

Fines for Fidelity Employees

• Senior Vice Pres Grenier censured by SEC

• Respondent Grenier was ordered to cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act;

• Grenier fined $24,152 and prejudgment interest of $2,166 to the U.S. Treasury

• Grenier to pay a civil money penalty of $25,000 to the U. S. Treasury.

Employee Fines - Fidelity Policy

• Advisor Peter Lynch ordered to pay

$15,948.68 and prejudgment

interest of $4,183.83 to the United

States Treasury.

•

36

Sanctions & Remedies- Fidelity

• Independent Compliance Consultant

• The Independent Trustees accepted

Judge Martin's final report of his

investigation on November 16, 2006.

• Fidelity to reimburse $42 million to

the affected Funds

SECURITIES INDUSTRY

SELF REGULATION

Security Industry Self Regulation

37

Financial Industry Regulatory

Authority

• Independent regulator for all securities firms

in USA

• Brokerage firms 4,900, branch offices 173,000

and registered securities representatives

651,000

• Created July 2007 from NASD + Enforcement

functions of New York Stock Exchange

FINRA Rules for Gifts

• Reg Reps cannot give gift > $100

• Is the Gift Business Related?

• Restrictions do not apply for:

• Nominal items pens, notebooks, or

inexpensive items with the firm logo

• Branded items like branded

umbrellas, tote bags or tee shirts

38

FINRA Rules for Gifts

• Restrictions do not apply for:

• Decorative items celebrating the

closing of a deal. The customary

tombstones, plaques, or other items

distributed to deal teams at the end

of a business transaction.

FINRA Rules

• Restrictions do not apply for:

• Decorative items celebrating the

closing of a deal. The customary

tombstones, plaques, or other items

distributed to deal teams at the end

of a business transaction.

39

FINRA Rules – Fair Market Value

• Value of a Gift is Based on the Higher of Cost or Market Value ( See NASD Rule 3060)

But not the tax and delivery charges

• For example, a gift of a sold-out sporting event ticket that was bought at a premium from a ticket broker would be valued on the amount paid to the ticket broker and not on the face value.

•

FINRA – Recordkeeping /Supervision

• Recordkeeping requirements

• Firm is required to have a supervisory system in place that is reasonably designed to achieve compliance with it.

• Firm has to report, track, and provide back-up for all the gifts that are given to people who are:

– Employees

– Agents

40

BEST PRACTICES

HCCA/SCCE SURVEY on

Gifts and Entertainment

Corporate Gifts & Entertainment

A Survey of Practices March 2009

A survey by the Health Care Compliance

Association & the Society of Corporate

Compliance and Ethics

www.hcca-info.org | www.corporatecompliance.org

41

For More Information Contact:

Paula Saddler

Hudson-Ethics Consulting LLC

psaddler@hudson-ethicsconsulting.com

Tel: 718 884-4266