Far
When of the first lessons I learned as an MBA student was just how parochial was my business outlook; I thought I was reasonably sophisticated being a surgeon in the New York area. But while I was used to large regional medical centers, global business was an entirely different beast. When the world is your stage, you have a lot of opportunity for good and bad. Fresenius Medical has been a bad, bad company.
Fresenius Medical Care (FMC) is based in Germany, trades on our stock exchange and earned about $6 billion last year in gross profits. They are one of the world’s leaders in dialysis, the treatment for patients with end-stage kidney disease. In this last week, they settled, acknowledging their liability, with our Department of Justice for a fine of $231 million or about 3.8% of their current profit. The crime, bribing foreign officials to enhance their sales.
As in the United States, bribing officials is against the law; in this case, the Foreign Corrupt Practices Act (FCPA) makes it illegal to bribe officials anywhere in the world. I would add that we covered this particular law within the first few weeks of our MBA education. But it seems that some of Fresenius’s employees missed the class.
Fresenius used a variety of standard approaches to bribery; vacations, payments for consultation that never occurred, providing percentages of ownership in dialysis equipment distributors. In exchange, they got patient referrals, were designated as the sole or favored providers. The countries involved included Saudi Arabia, Angola, Morocco, Spain, Turkey, and West Africa. The bribery netted Fresenius an additional $141 million in revenue. [1]
To be fair, the corrupt practices were carried out without the knowledge of Fresenius’s highest executives, and when the bribery was discovered, they began an internal investigation and notified the Department of Justice of the problem. That is the reason that a non-prosecution agreement was afforded them. But while Fresenius reported the bad acts the company “did not timely respond to certain requests by the Department and, at times, did not provide fulsome responses to requests for information.” The criminal component of the penalty $84 million was discounted by 40% from the lowest amount required in the sentencing guidelines – so it pays to be at least partially cooperative. The remaining amount was paid to the Securities and Exchange Commission for violating their rules.
Fresenius’s statement on the settlement was notable most for indicating that they had set aside monies to pay these costs last year, so investors should not worry, “the resolutions will have no effect on the company’s 2019 and 2020 outlook.”
Near
It would be premature to call this bribery, so let’s call it self-dealing, but it is suspicious. Baltimore’s mayor, Catherine Pugh, has taken an indefinite leave of absence due to health concerns after it was reported she received two large payments for her first children’s book, Healthy Holly. The mayor was a board member of the University of Maryland Medical System and received $500,000 from the Medical System for her book. She was not alone; 9 other of the 30 board members have business with the medical system. Reminds you a bit of the concern over Memorial Sloan Kettering’s board and their business affiliations.
When these payments came to light the mayor’s representative indicated this was the only payment. It turns out that was incorrect; Kaiser Permanente also paid the mayor another $114,000 for her book. It was perhaps coincidence that they had a proposal to provide health care coverage to city workers, a contract worth $48 million which they have subsequently received.
Mayor Pugh is the 12thhighest paid mayor in the United States at $178,294 annually.
[1] Angola, $12.7 million; Saudia Arabia, $42.7 million; Morocco, $3.7 million; Spain, $23.8 million; Turkey $1.3 million; and West Africa $56.7 million
Sources: Fresenius pays $231 million to resolve federal bribery charges
Fresenius Medical Care resolves FCPA investigation
Baltimore Mayor Pugh to take leave of absence in midst of 'Healthy Holly' book controversy
Chuck Dinerstein, MD, MBA
Director of Medicine
Dr. Charles Dinerstein, M.D., MBA, FACS is Director of Medicine at the American Council on Science and Health. He has over 25 years of experience as a vascular surgeon.
