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.
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Meta
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 “Undercoverâ€
http://ethicsolutionsllc.com
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
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