By Fred Schulte
MSNBC
Investigative Reporting Workshop, American University
Thurs., July 2, 2009
Nancy-Ann DeParle, President Barack Obama’s health policy czar, served as a director of corporations that faced scores of federal investigations, whistleblower lawsuits and other regulatory actions, according to government records reviewed by the Investigative Reporting Workshop at American University.
Several of the companies were investigated for alleged kickbacks or engaging in other illegal billing schemes, while others were accused of serious violations of federal quality standards, including one company that failed to warn patients of deadly problems with an implanted heart defibrillator. Several of the cases ended with substantial fines paid to the federal government, even though the companies admitted no wrongdoing.
Since leaving her government job running Medicare for the Clinton administration, DeParle built a lucrative private-sector career. Records show she earned more than $6.6 million since early 2001, according to a tally by the Investigative Reporting Workshop.
Much of that corporate career was built at companies that have frequently had to defend themselves against federal investigations. After leaving government, DeParle accepted director positions at half a dozen companies suspected of violating the very laws and regulations she had enforced for Medicare. Those companies got into further trouble on her watch as a director.
Now she’s back in government as a leading voice in deciding the shape of health care reform. Named by Obama in March as director of the White House Office of Health Reform, making $158,000 a year, DeParle is the point person in pushing for the administration’s plans for changing health care and the ways Americans pay for it — changes in which her former companies have a great deal at stake.
Critics see DeParle’s re-emergence as a classic case of Washington “revolving door” syndrome, despite Obama’s suggestions that he would shut that door.
The administration faces a “balancing act,” said Steve Ellis of the nonpartisan Taxpayers for Common Sense. Obama must find leaders with the proper expertise, but who are “not so conflicted that they cannot engage in all facets of the debate.”
Advocates of a “single-payer” coverage plan say that DeParle may be indebted to the companies she served, and more broadly to the health care industry.
“This woman owes her fortune to the corporations that she is making decisions about,” said Dr. David Himmelstein, an associate professor of medicine at Harvard University and a co-founder of Physicians for a National Health Program.
“She cashed in really big on her previous role in government and made millions and millions of dollars. Then she divests and all of a sudden she’s Snow White. It’s ridiculous.”
Among DeParle’s corporate connections:
* DaVita Inc., which owns and operates kidney dialysis centers, has been the subject of several government probes into its billing and drug-prescribing practices, most recently in December by Justice Department investigators in Georgia. DeParle joined the DaVita board in May 2001 and resigned in July 2008 “to devote more time to her other business activities,” according to the company. She earned more than $2 million in compensation and stock sales, according to records at the Securities and Exchange Commission.
* Boston Scientific Corp. reported to the SEC that it received five state or federal subpoenas during 2008, including ones from the Justice Department and Health and Human Services, which oversees the Medicare agency. In addition, Defense Department criminal investigators are looking into the company’s “marketing interactions” with doctors at a U.S. Army hospital in Tacoma, Wash. DeParle joined the Boston Scientific board in April 2006 and resigned on March 4 of this year, two days after she was appointed to the White House post. She earned more than $1.4 million in compensation and stock sales from her years at Boston Scientific and a company it bought, the Guidant Corp.
* Guidant, which already was in legal trouble for failing to disclose 12 patient deaths when DeParle joined the board in 2001, has since then faced new problems. After a college student died in 2005 when his implanted defibrillator failed on a biking trip, his doctor told Congress that Guidant officials had known of similar problems for three years, but failed to tell the public.
Five of the corporations whose boards DeParle served on have paid a total of $566 million since 2003 to settle fraud or product liability cases, often involving tax dollars paid by Medicare.
Four signed “corporate integrity agreements” in which they promised to tighten oversight of their billing practices in exchange for the government agreeing not to take legal action to kick them out of the Medicare program.
“These raise eyebrows,” said Ellis, of Taxpayers for Common Sense. “These are things that have to be considered and evaluated.”
The White House did not make DeParle available for an interview about her corporate ties. Her spokeswoman, Linda Douglass, said the White House would not have time to answer questions about DeParle’s actions as a director. DeParle also declined interview requests from msnbc.com, which is co-publishing this article with the Investigative Reporting Workshop.
A director’s responsibility
There is no reason to think that DeParle was directly involved in any of the actions that led to the investigations and sanctions. DeParle was a member of the board of directors of these companies, not the chief executive officer managing day-to-day operations. It is rare for directors to be held legally accountable for illegal dealings by management.
However, the 2002 Sarbanes-Oxley law, passed by Congress after the scandals at Enron and other companies, requires directors to be more aware of what is happening inside companies. Federal guidelines tell directors they should exercise even more oversight in health care firms.
Michael W. Peregrine, a corporate compliance lawyer in Chicago, said that while board members aren’t obligated to “ferret out wrongdoing,” they need to question management once they learn of regulatory problems and to “make sure something is being done about it. The board has to ask, ‘What the hell’s going on here?'”
At three companies — Guidant, DaVita and Specialty Laboratories — DeParle was not only a director but also served on board committees responsible for monitoring the companies’ compliance with laws and regulations.
Publicly traded companies must disclose to shareholders the existence of investigations, enforcement actions or lawsuits that could affect their earnings. These filings, made with the Securities and Exchange Commission, often are short on specifics, including when the conduct that’s under investigation allegedly occurred. These investigations typically drag on for years.
It’s therefore difficult to say in some cases whether DeParle’s board service coincided with the company’s suspicious conduct, or whether some of the conduct preceded her service but only came to light during her service.
In a few additional cases, DeParle joined companies that had already gotten into trouble.
For example, DeParle agreed to join the board of Guidant just days after it acknowledged it had covered up the deaths of 12 patients and more than 2,000 injuries caused by a faulty surgical device. She was on the board when the company pleaded guilty to 10 felony charges in the case, and paid $92 million in fines. The apparent cover-up in the separate case involving the implanted defibrillator came to light when DeParle had been on the board for two years.
And she joined the board of Boston Scientific about a year after it had paid $74 million to settle a federal criminal investigation into the company’s delay in recalling a faulty heart device. No charges were brought, and the company no longer sells the product, called a stent. It also denied wrongdoing as part of the settlement with prosecutors.
Peregrine, the regulatory compliance lawyer, said potential directors should be “cautious” about joining the boards of companies with a history of clashing with regulators. Board members need to satisfy themselves that the organization has developed “a culture of compliance” with laws, he said.
‘A dedicated public servant’
DeParle resigned her corporate board positions upon taking the White House position, according to a financial disclosure form dated May 13 but only released by the White House on June 12. A handwritten note on the first page says that, as of June 4, “all conflicting assets have been divested.”
Her spokeswoman said DeParle has recused herself from any matters that might affect these companies, and has sold her stock in them at a “fairly substantial financial loss to herself and her family.” DeParle has “come into government with the understanding it would require a financial sacrifice. She is in complete compliance with all ethical requirements of the administration,” Douglass said.
“She gave it all up to come and work in a tiny cramped office on one of the most important issues the country is dealing with,” Douglass said. “She’s working seven days a week, not seeing her children and working incredibly long hours. She’s doing this because she is a dedicated public servant.”
Update: Douglass told The Washington Post that, if an investigation arose during DeParle’s tenure on a board, she pressed executives to fully comply. No details were given. And before joining any board, Douglass said, DeParle “did extensive due diligence, talking with other board members, lawyers and others familiar with the company.”
The public may never get a full accounting of her actions on corporate boards. Although DeParle is the point person on Obama’s effort to overhaul health care for all Americans, she didn’t have to face questions at a Senate confirmation hearing, because she’s a White House staffer, not a Cabinet official.
DeParle, 52, was the first woman to be president of the student body at the University of Tennessee, a Rhodes Scholar, and graduated from Harvard Law School. She ran the Medicaid program in Tennessee before going to Washington. Since leaving the Clinton administration, in addition to serving on corporate boards she was a managing director of a private equity firm that invested in health care companies, a trustee of the Robert Wood Johnson Foundation, and held fellowships at two universities.
‘Makes you more valuable’
Growing concern over fraud in the health care industry has led federal officials in recent years to warn directors that they must make “good faith” inquiries into business practices, particularly when there’s reason to suspect wrongdoing. Federal officials are requiring more rigorous oversight by board members of the effectiveness of a company’s formal plan for complying with federal laws and regulations.
“Having government experience is a plus. It is one of the things that make you more valuable,” said Lynn Shapiro Snyder, a Washington lawyer and corporate defense counsel.
In DeParle’s case, four corporations paid her a total of $533,189 last year for serving as a director, according to SEC filings. The year before, she made $549,322 from three board positions. Of the $6.6 million she made from 2001 to 2009, about $2.2 million came from directors’ fees, and $4.4 million from stock options and trades. Her DaVita shares made her at least $1.8 million, and she made $1 million when Triad Hospitals Inc., a Texas company, was sold in 2007.
DeParle’s White House financial disclosure form shows that in 2008 she received $1 million in salary and bonus from CCMP Capital Advisors, LLC, a private equity firm she joined in August 2006 as a managing director helping oversee health care investments. Those interests included a Medicare managed care plan and a start-up hospital chain. She resigned from the firm in March.
Her White House biography mentions that she had served on corporate boards, but doesn’t name any of them. Though it dwells on her government career, it states that she “also brings a unique industry perspective from her work in the private sector.”
The investigations and lawsuits are at odds with DeParle’s reputation in Washington as a progressive, highly respected health policy analyst. During the late 1990s, when she ran Medicare, she pushed hard to raise medical quality standards and to clamp down on fraud and waste in the massive federal health plan for the elderly.
“In my experience, she’s the one administrator who really was tuned into the fraud issue,” said William J. Mahon, a former director of the National Health Care Anti-Fraud Association. “She distinguished herself in putting fraud on the agenda.”
Other companies with much to gain
Whether DeParle’s time in the private sector will influence the shape of health care reform remains to be seen. But there’s no doubt that the decisions will have significant impact on the corporations she formerly served. The Obama administration’s decision to spend billions of dollars promoting the use of electronic medical records offers an example.
In an April 15 media briefing in Washington, DeParle mentioned electronic medical records twice, first saying that an electronic system will help prevent medical errors and ensure that patients get “the right treatments.”
In response to a question, she added: “We want to incentivize physicians to use electronic medical records in a meaningful way for better treatment, better care, more convenience, better administration in their offices.”
Nobody mentioned her lengthy relationship with the Cerner Corporation, a major manufacturer of electronic medical records software based in Kansas City. From May 2001 until the day after her White House appointment, DeParle served on the board at Cerner, which has not reported any investigations into its finances or business dealings in recent years.
DeParle earned at least $680,000 from director’s compensation and stock options while she was on the Cerner board.
Mia Steinle contributed to this report.