Superior Skill, Insight, and Industry, or Fraud?

Kyphon employees sold, sold, sold Kyphon’s products for spinal fracture repairs. One rep took his territory’s sales from $16,000 a month to $200,000 per month in less than a year. Incentive programs do produce miracles. The whizzes in organizational behavior can document as an unassailable proposition that if you want results, “incent.” But, most incentive programs don’t take into account the tendency of “incented” employees to outsource those miracles. Miracles aside, employees with incentives can get creative. So, you end up with lots of sales followed by a $75 million settlement with the federal government for Medicare fraud under a corporate integrity agreement that will find you monitored as you spend, spend, spend on compliance and ethics programs.
Kyphon, now Medtronics Spine, faced the Medicare fraud allegations when two former employees brought suit under the False Claims Act. Medtronics acquired Kyphon in 2007 while the former employee suits for Medicare fraud were pending. According to documents in the case, Kyphon sales reps didn’t just tout the benefits of Kyphon products, and indeed there are many. The sales reps offered the doctors and hospitals a way to keep patients overnight. Helping docs and hospitals bill Medicare for an overnight stay on a one-hour, walk-away outpatient procedure was a boon. Kyphon created a mutually beneficial triangle: more sales for Kyphon, more commissions and bonuses for reps, and more revenue for docs and hospitals.
Be careful what you “incent.” More importantly, understand how employees get the results that entitle them to incentives. And if employees have jumped from $16,000 per month to $200,000 per month in sales in less than a year, you may want to perk up an eyebrow or two and raise some questions. Most importantly, put parameters around those incentives. Yes, we want employees to be successful, through, as those in the antitrust field say, superior skill, insight, and industry. If you have more sales because you work harder and offer better products and service, more power and incentives to you. But if you have more sales because you are defrauding the federal government or even just upcoding a procedure to net your customers more revenue, you have crossed a line that nixes those incentives. Incentives should be encased in a box of values, and a series of lines you and your employees would never cross to get results.
FOR MORE INFORMATION, go to www.usdoj.gov. Press releases, May 22, 2008.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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3 Responses to Superior Skill, Insight, and Industry, or Fraud?

  1. Marianne,

    Are incentives the root of the fraud at Medtronic’s Kyphon? Is it the corporate culture or industry standard that created and promoted the incentives? If you remember several years ago Columbia/HCA paid two separate settlements that totaled $1.7 Billion. The Columbia/HCA settlement too could partially be blamed on employee incentives in the form of bonuses. How do I know this? I was a whistleblower at Columbia/HCA and exposed many of their fraudulent practices. Incentives there caused employees to aggressively create ways to increase reimbursement and many were illegal. When will providers learn?

    John W. Schilling
    Author of “Undercover”
    http://ethicsolutionsllc.com

  2. mmjdiary says:

    Thanks for the post to my site. Now, here’s another layer — could it be that price controls introduce moral hazards? Is it government price limits/controls that then fuel the drive to recoup that then fuels the incentives that then fuel the fraud? We probably agree that this system is not one with easy fixes, and it is one fraught with misconduct and, as you state, few lessons learned.

    Marianne

  3. Marianne Jennings response.

    Strict government price controls definitely may contribute to misconduct by individuals or corporations. However, it is still the conduct of the individual to make the right choice and to take the right path. It is also their choice to conduct business within the rules and regulations without cheating the government. Greed I believe is the motivating factor to cheat. I agree it is not an easy fix.

    John W Schilling
    Author – Undercover
    http://ethicsolutionsllc.com

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