Drug Industry Fraud


The corporate defrauding of taxpayers (eg. Medicaid and Medicare) and prescription drugs with skyrocketing prices was the subject of a report by Public Citizen’s Dr. Sidney Wolfe and his associates (see citizen.org).

Dr. Wolfe’s team compiled a total of 165 federal and state settlements since 1991 totaling $19.8 billion in penalties. A key finding is that the drug industry’s penalties under the Federal False Claims Act exceed even those assessed against the overcharging defense industry for fraud.

Before we become overly impressed with the cumulative amount of the penalties, specialists in corporate crime law enforcement believe that adding more federal cops on the corporate crime beat, backed by a determined law and order Justice Department with White House backing, would have greatly increased the number of cases and imposition of penalties on these drug industry giants.

Nonetheless, Dr. Wolfe’s study shows that the pace of penalties has picked up over the past five years. This is due to "a combination of increased violations by companies and increased law enforcement on the part of federal and state governments," says the report.

Many of these cases were initiated by company whistleblowers, who under the False Claims Act can receive a share of the settlements. Since the corporate bosses of these drug firms are almost never prosecuted, what these executives fear the most are company employees who go public with the evidence of corporate misdeeds.

These violations do more than financial damage to consumers and government health insurance programs. One of the worst violations involves companies promoting unproven, often dangerous uses for their medicines. Last year, Pfizer paid $1.2 billion for illegal off-label promotion -the largest criminal fine in U.S.history. Other major corporate violators were GlaxoSmithKline, Eli Lilly, Schering-Plough, Bristol-Myers Squibb, AstraZeneca, TAP Pharmaceutical, Merck, Serono, Purdue, Allergan, Novartis, Cephalon, Johnson & Johnson, Forest Laboratories, Sanofi-aventis, Bayer, Mylan, Teva and King Pharmaceuticals.

The violations by these and other drug companies point to the wide range of impacts, including taking many lives of patients, which stems from these recurrent activities. These criminal or civil illegalities cover (1) overcharging government health programs, (2) unlawful promotion, (3) monopoly practices, (4) kickbacks, (5) concealing study findings, (6) poor manufacturing practices, (7) environmental violations, (8) financial violations and (9) illegal distribution.

Outside the purview of the Public Citizen study are the ravages of counterfeit drugs and poorly inspected ingredients in drugs, now mostly coming from China and India, due to the outsourcing by U.S. and European drug companies in their thirst for even greater profits.

Drug company sales are huge, growing from $40 billion in 1990 to $234 billion in 2008, and far exceeding inflation with their annual price gouging. To make matters worse, in 2003, the Congressional Republicans, with decisive support from some Democrats, passed the drug benefit bill which explicitly prohibited Uncle Sam, the payer, from bargaining for volume discounts with drug companies.

With over 400 full-time drug company lobbyists putting pressure on Congress, and tens of millions of dollars flowing into the legislators’ campaign coffers, budgets for federal investigators, prosecutors and inspectors are kept to a minimum. Unfortunately, crime in the suites pays over and over again, despite occasional penalties.

A bright spot is the increasing enforcement action at the state level.

By last year, 32 states had enacted false claims acts, including fourteen states that qualified as strong laws by federal standards.

Still, the Wolfe report concludes that the "current system of enforcement is not working." He gives the examples of the $7.44 billion in financial penalties assessed over the past twenty years on GlaxoSmithKline and Pfizer, as compared to their combined total of $16.5 billion in global net profits in one year alone.

What would deter these illegal practices and risks to public safety? Dr. Wolfe says "the lack of criminal prosecution that would result in jailing of company executives." is key. Moreover, the report notes that "a felony conviction could result in their companies becoming ineligible for reimbursement from federal and state health programs, a critical source of pharmaceutical company revenues."

A flicker of hope that a little change is on the way came from the Food and Drug Administration’s Deputy Chief Counsel for Litigation, Eric Blumberg. He indicated that the government is considering going after drug company executives for violations such as off-label promotions. He stated: ".unless the government shows more resolve to criminally charge individuals-at all levels in the corporate hierarchy–.we can not expect to make progress in deterring off-label promotion."

The problem is that the final operating decision is in the hands of the Justice Department-historically short-staffed and short-willed to entreaties for prosecution by the FDA and other regulatory agencies.

Furthermore, for over 30 years, the Justice Department has stone-walled requests that it start a corporate crime database as it has done with street crimes. Congress likes it this way, as it continues to cash corporate campaign checks.

Just last week, however, outgoing Judiciary Committee Chairman, Democrat John Conyers introduced a bill (H.R. 6545) to create such a corporate crime data base in the Justice Department. Well, as the saying goes, everything starts with a gesture!

RALPH NADER is the author of Only the Super-Rich Can Save Us!, a novel.




Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

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