The Rap Sheets of the Big Ventilator Producers

Earlier this year, the U.S. Attorney’s Office in South Carolina announced that a company called ResMed had agreed to pay more than $37 million to settle allegations under the False Claims Act that it illegally paid kickbacks to promote sales of equipment used to treat sleep apnea.

The case did not receive much attention at the time, but ResMed, which also produces ventilators, is now one of the companies involved in the controversy over the distribution of equipment that hospitals desperately need to save lives during the coronavirus pandemic.

New York Gov. Andrew Cuomo and other state chief executives have been complaining about price-gouging and shipments that fail to materialize, as health systems across the country compete for a woefully inadequate supply of ventilators, some of which have reportedly been exported.

This apparent profiteering should come as no surprise, given the track record of the ventilator industry, in which ResMed is not the only producer with a history of alleged misconduct. In fact, all the big publicly traded companies in the industry have paid millions of dollars in penalties in False Claims Act, kickback and bribery cases.  Along with ResMed, they are Philips, General Electric, Hill-Rom, and Medtronic.

In 2016 a Philips subsidiary called Respironics agreed to pay $34.8 million to settle allegations similar to those faced by ResMed involving the payment of kickbacks to suppliers for the purchase of sleep apnea equipment. In 2013 the Securities and Exchange Commission ordered Philips to pay $4.5 million for violations of the Foreign Corrupt Practices Act stemming from improper payments to healthcare officials in Poland.  

In 2011 GE Healthcare agreed to pay $30 million to settle False Claims Act allegations that a subsidiary caused Medicare to overpay for a radiopharmaceutical used in certain cardiac diagnostic imaging procedures by giving the federal government false or misleading information about doses.

Also in 2011 Hill-Rom agreed to pay $41.8 million to settle allegations that for years it knowingly submitted numerous and repeated false claims to the Medicare program for certain specialized medical equipment – bed support surfaces for treatment of pressure ulcers or bed sores – for patients for whom the equipment was not medically necessary.

Since 2006 Medtronic and its subsidiaries have paid more than $160 million in penalties in eight False Claims Act cases. The largest of these was a $75 million settlement agreed to by Medtronic Spine to resolve allegations that its marketing activities caused hospitals to submit false claims for kyphoplasty procedures, minimally-invasive surgeries used to treat compression fractures of the spine caused by osteoporosis, cancer or benign lesions.

Along with the False Claims Act cases, which are civil matters, a Medtronic subsidiary agreed to plead guilty and pay more than $17 million in 2018 to resolve a criminal charge that it promoted a neurovascular device for uses that were not approved by the FDA and were potentially dangerous.

It is true that none of these cases involved mechanical ventilators, but they do suggest something about ethical practices at the five companies. These are corporations accused of putting their own financial interests ahead of those of the federal government and thus the taxpayers. One of them has a subsidiary that is literally a corporate criminal.  

The coronavirus crisis is exposing many vulnerabilities of U.S. society. Among them is that the survival of many thousands of people now depends in large part on the behavior of a group of companies that have been something less than model corporate citizens.

This makes it all the more scandalous that the Trump Administration refuses to make full use of the Defense Production Act to end profiteering in the ventilator industry and force it to serve the needs of the country during this national emergency.

Bailouts and Bad Actors

The $500 billion business rescue provision of the coronavirus relief bill will be less of a slush fund than originally envisioned, thanks to the addition of some significant safeguards such as the creation of a special inspector general and a Congressional oversight commission.

There has also been a welcome move toward transparency through a requirement that the Treasury Secretary post details on each loan, loan guarantee or other form of assistance soon after the award is made.

Yet there is one risk the bill does not address: the possibility that among the companies sharing in the federal government’s largesse will be regulatory scofflaws and other corporate bad actors.

There are some notable precedents for such an outcome. The Troubled Asset Relief Program, in fact, was largely an effort to bail out the financial institutions whose misconduct to a great extent caused the meltdown of 2008. The biggest TARP recipient, with $67 billion in support from the Treasury Department, was American International Group, which had sold large quantities of risky credit default swaps. Other giant banks that helped generate toxic securities were also high on the TARP loan list, including Bank of America and Citigroup ($45 billion each) as well as JPMorgan Chase and Wells Fargo ($25 billion each).

Along with the TARP loans, these banks also benefitted from massive liquidity programs implemented by the Federal Reserve and the Federal Deposit Insurance Corporation. The data available on these programs, which include lots of short-term loans that were frequently rolled over, add up to more than $3 trillion for Bank of America and $2 billion each for Citigroup and Morgan Stanley.

On top of all this, banks received what amounted to subsidies — $435 million in the case of JPMorgan Chase – through incentives provided to mortgage servicers under the Home Affordable Modification Program.

It was unavoidable that the TARP program, designed to rescue the whole financial system, would end up assisting bad actors. The problem is that those corporations continued to exhibit anti-social behavior after being bailed out.

Consulting the data in Violation Tracker, we see that since 2010, Bank of America has paid more than $63 billion in penalties. Much of this stems from lawsuits linked to the period leading up to the financial crisis, including those brought against companies purchased by BofA, especially Merrill Lynch and the predatory home lender Countrywide Financial.

Yet BofA also got in new trouble of its own. For instance, in 2014 it was ordered by the Consumer Financial Protection Bureau to provide $727 million in relief to credit card customers who had been charged for services they were not receiving.

Since 2010 Citigroup has paid more than $16 billion in penalties. Here, too, much of that total relates to cases stemming from the crisis – but not all. In 2015 it, along with other major U.S. and European banks, pled guilty to conspiring to manipulate the foreign exchange market. Citi’s penalty was $925 million.

And then there’s the case of Wells Fargo, which in the years after getting bailed out, has become a poster child for corporate irresponsibility as a result of its brazen sham-account scandal and other controversies.

Some of the bank misconduct of recent years could have been prevented if the federal government retained the equity stakes it took in TARP recipients while the loans were in effect. In the case of AIG the government had taken control of about 80 percent of the company. Smaller stakes were taken in other recipients.

The government used those stakes mainly to make sure that the loans were repaid, and in the end the feds made a profit on TARP. Yet those ownership interests could also have been used to retain a measure of influence over corporate governance and decision-making on issues relating to regulatory compliance and overall good behavior.

This approach could also apply to the coronavirus relief package, which seems to allow for the possibility that the federal government will take equity stakes in corporations that receive large amounts of financial assistance.

Now as in 2008, Congress cannot avoid providing assistance to bad actors, since doing so would harm employees at those firms. Yet it could use equity holdings to discourage corporations from resuming their bad behavior after we get through the pandemic.

Note: Data on the companies that received TARP bailout loans and liquidity assistance from the Fed and the FDIC can be found on this new Subsidy Tracker page, which also contains a list of corporate recipients of Recovery Act grants, loans and tax credits. Data on the misconduct of these and other companies can be found in Violation Tracker.  

A Pandemic Is No Time to Dismantle Regulatory Safeguards

As much of the economy melts down amid the coronavirus pandemic, many large corporations are lining up for financial bailouts from the federal government. Assuming the right safeguards are put in place, these payments may be justified. Yet there is a risk that big business may also seek another kind of assistance whose benefit is more dubious: relief from regulations.

Some loosening of restrictions make sense in a crisis, and federal regulators are already taking steps to address immediate needs. The FDA is changing rules so that private labs and state health departments can more readily use covid-19 tests developed outside of the agency. HHS is allowing healthcare providers to bill Medicare for telemedicine sessions.

Those are the no-brainers. But what about the decision by the Federal Motor Carrier Safety Administration to relax restrictions on truck driver hours for those making emergency deliveries? Do we want sleepy drivers on the road, even if they are doing essential work?

And then there are the calls from big banks for lower capital requirements and the easing of periodic stress tests. The point of those requirements is to make sure banks are in a position to weather a downturn. Relaxing the rules is something the big banks were urging well before the pandemic, and their push now may be little more than an effort to exploit the crisis.

We are likely to see more calls for regulatory easing both from corporations and from Trump Administration agencies such as the EPA that have already been trying to undermine existing safeguards.

There is also a debate on whether regulatory rulemaking should continue at a time when many regulators are working from home and many advocates may have a harder time monitoring current proceedings.

Since many of those proceedings involve efforts by industry and the Trump Administration to roll back or eliminate current rules, delays would provide a welcome obstacle to the deregulatory juggernaut. On the other hand, agencies may use the pandemic as an excuse to reduce the opportunities for public interest groups to intervene in the process.

Another gnarly question is how to handle bailouts for corporations that have less than stellar records when it comes to regulatory compliance. We don’t want to ignore the needs of employees of those companies who might otherwise lose their jobs, but it also doesn’t feel right to be handing over large sums to firms that have flouted the law.

If those payments are going to happen, among the strings that need to be attached could be provisions requiring companies to strictly adhere to all applicable laws and regulations. Scofflaws would be compelled to repay the money and face other serious consequences.

Big business should not be allowed to use the covid-19 pandemic as cover for undermining safeguards that protect us from the many other dangers in the world.

Note: Violation Tracker has just been updated. It now contains more than 412,000 entries representing more than $616 billion in penalties. The corporation with the biggest jump in its penalty total is Wells Fargo, due to its recent $3 billion sham-account settlement with the federal government.