06 Oct Kickback scandal clouds $12.2B BD acquisition of CareFusion
News broke last night that CareFusion Corp., maker of patient safety-focused medical devices like smart infusion pumps and automated medication administration cabinets, was being acquired by medical equipment manufacturer BD (formerly Becton Dickinson & Co.) for $12.2 billion.
Why, you ask, would a health IT columnist care about a merger in medical devices? Two reasons.
The first is obvious: many of the smart devices that CareFusion produces integrate with electronic health records, computerized physician order entry, barcoded medication administration systems and other major forms of clinical information technology. CareFusion, the result of a 2009 spinoff from Cardinal Health, is a leader in that area.
Secondly, and more concerning, is CareFusion’s recent role in what has been called “patient safety’s first scandal.” As I reported elsewhere before I started blogging for Forbes.com, CareFusion agreed back in January to pay $40.1 million to the federal government to settle criminal charges that the San Diego-based company paid kickbacks to physicians and illegally promoted off-label uses of its products.
Among those kickbacks, according to the U.S. Department of Justice were $11.6 million in payments to a formerly well-respected patient safety advocate, Dr. Charles R. Denham, of Austin, Texas, founder of an organization known as the Texas Medical Institute of Technology (TMIT). Denham is a former co-chair of the steering committee of the National Quality Forum’s Safe Practices for Better Healthcare program, and NQF quality measures are an integral part of the federal government’s $27 billion EHR incentive program known as Meaningful Use.
As part of the settlement, CareFusion did not admit any guilt, but the episode obviously is troubling, and makes me wonder why shareholders and executives should be rewarded with such a handsome payday in light of this behavior.
I’m not the only one who has questions about CareFusion, though our reasons don’t exactly match up. Shortly after the deal was announced, Boston law firm Block & Leviton LLP said it was investigating CareFusion on behalf of shareholders, claiming that BD is buying the company on the cheap. The sale price of $58 in cash and stock represents a 26 percent premium over Friday’s closing price, which just happened to be a 52-week high, and CareFusion has showed no signs of slowing its recent growth, according to the firm.
“As such, the purported transaction premium would likely have been surpassed in short order by expected continued growth in CareFusion’s stock price,” the Block & Leviton press release said.
If I were BD, I’d be more concerned about the scrutiny the deal might get from the Justice Department. (I don’t see any reason why the Federal Trade Commission would block the acquisition on antitrust grounds.) I’d also wonder if anyone in the patient safety community would trust CareFusion in light of the recent kickback settlement.