Multinational Monitor

SEP/OCT 2005
VOL 26 No. 9


The Storm This Time: A Personal Account of the Natural and Unnatural Disaster in the Wake of Hurricane Katrina
by David Helvarg

Disaster Profiteering: The Flood of Crony Contracting Following Hurricane Katrina
by Charlie Cray

Between Soldiers and Bombs: Iraq's Fledgling Labor Movement
by David Bacon

Takeover Inn Argentina: Argentina's Worker-Run Cooperative Movement
by Aaron Freeman


The Human Engineering of Catastrophe: Coastal Maldevelopment and Katrina's Wrath
An Interview with Mark Davis

The Soul of New Orleans: Asseting Rights of Low- and Moderate-Income Families in Hurricane Reconstruction
An Interview with Tanya Harris

Restoring the Gulf: An Ecological Agenda
An Interview with Cynthia Sarthou


Behind the Lines

Exploiting Disaster

The Front
Fake Debarment

The Lawrence Summers Memorial Award

Names In the News


The Front

Fake Debarment

Pharmaceutical manufacturer Serono Labs was hit with a major penalty in October. Or was it?

Serono Labs, a unit of the U.S. subsidiary of the Swiss corporation, Serono, S.A., agreed in October to plead guilty to the illegal marketing of its AIDS drug Serostim.

The corporate parents will pay a $136.9 criminal fine and an additional $567 million to settle civil liabilities, including liabilities under the False Claims Act.

Serostim is used to treat AIDS wasting, a condition involving profound involuntary weight loss in AIDS patients.

Serono Labs, the unit of the U.S. parent, will plead guilty to charges that the company conspired with medical device manufacturer RJL Sciences to market bioelectrical impedance analysis (BIA) computer software packages for use in calculating body cell mass and diagnosing AIDS wasting. The device has not been approved by the Food and Drug Administration for these uses.

Serono Labs conspired with RJL to increase the market for the devices/software in order to increase the market for Serostim, federal officials alleged.

Serono Labs employees also directly administered BIA tests to patients to induce doctors to prescribe Serostim and to get Medicaid agencies and other payers to reimburse for the drug.

RJL and its president, Rudolph J. Liedtke, pled guilty to their roles in the conspiracy earlier this year and are awaiting sentencing.

Serono Labs also pled guilty to offering physicians an all-expense-paid trip to a medical conference in Cannes, France in return for the doctors writing up to 30 new prescriptions of Serotism, which cost $21,000 per course of treatment, for a total value of $630,000 per doctor.

Serono Labs will be excluded from all federal health care programs for at least five years.

But Serono’s U.S. subsidiary, Serono Holding, and all U.S. affiliates will not be so excluded.

And the Swiss parent will not be adversely affected by the exclusion.

In a side non-prosecution agreement, cut with Serono outside counsel Henry DePippo, a partner at Nixon Peabody in Rochester, New York, the Justice Department promised not to criminally prosecute the U.S. parent or the Swiss multinational parent.

“There have been some pretty creative plea agreements to avoid debarment,” William Mateja, former point person for the Justice Department’s Corporate Fraud Task Force and now a partner at Fish & Richardson in Dallas, said shortly before news of the Serono settlement broke. “But it raises an important question: should we be engaging in those kind of arrangements? Obviously, Congress felt strongly that if a healthcare fraud provider had been convicted of certain misconduct, it should be debarred. Some deference should be given to Congress’ intent.”

Patrick Burns of the Washington, D.C.-based Taxpayers Against Fraud, applauded the settlement, despite the fact that it included what he called a “fake debarment.”

“The exclusion is clearly window dressing,” he said.

“It’s like shooting buckshot over their heads,” Burns says. “It’s the government saying, ‘We just fired a shot over their head, with the full knowledge that the government could lower the barrel and end the business next time.’”

But that appears unlikely, because, whatever the law might provide for, the government has shown no willingness to impose the corporate death penalty for healthcare fraud.

Serono general counsel Tom Gunning wouldn’t say whether or not Serono Labs has any employees, and if so, how many.

Gunning did say that Serono Labs currently has no business with the federal government. The debarment agreement thus has no meaningful impact on the Serono operations.

The civil settlement resolves allegations that Serono knowingly submitted false and fraudulent claims for Serostim that were not eligible for reimbursement because they were for the unnecessary and/or off label use of Serostim and because the claims were for prescriptions induced by kickbacks.

The federal probe was launched in 2000 when a Serono Labs employee in Massachusetts filed a False Claims Act suit.

Four other employees filed similar suits in Maryland and Connecticut.

The individuals who filed the whistleblower suits will share in approximately $51.8 million.

“This scam was costing U.S. taxpayers scores of millions of dollars a year,” said James Moorman, president of Taxpayers Against Fraud. “Bringing it to justice was a public-private partnership made possible only because of the courage of whistleblowers who were willing to stand up, speak up and risk all.”

— Russell Mokhiber


The September/October Lawrence Summers Memorial Award* goes to Representative Richard Baker, R-Louisiana, and former Federal Emergency Management Agency (FEMA) chief Michael Brown.

Baker wins the award for a comment he was overheard making to lobbyists: "We finally cleaned up public housing in New Orleans. We couldn't do it, but God did."

Brown earned the award with his performance at a congressional hearing. "I think it's wrong for the federal government to be in the ice business, providing ice so I can keep my beer and Diet Coke cool,” he told the House Select Committee on Hurricane Katrina.

Representative Gene Taylor, D-Mississippi, responded incredulously, asking "How about the need to keep bodies from rotting in the sun?"

Representative William Jefferson, D-Louisiana, added: "One of the major reasons that old people just suffered and died is because there was no ice."

Sources: John Harwood, “Louisiana Lawmakers Aim To Cope With Political Fallout,” Wall Street Journal, September 9, 2005; Dana Milbank, “Downgrades for Brown's Topical Storm,” Washington Post September 28, 2005.

*In a 1991 internal memorandum, then-World Bank economist Lawrence Summers argued for the transfer of waste and dirty industries from industrialized to developing countries. “Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?” wrote Summers, who went on to serve as Treasury Secretary during the Clinton administration and is now president of Harvard University. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. ... I’ve always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City.” Summers later said the memo was meant to be ironic.


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