Essay Pharmaceutical

The Truth About the Drug Companies
By Marcia Angell, M.D.


10-Page Summary Exposes a Major Health Cover-up

For a two-page summary of the health cover-up, click here

"The combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion) [in 2002]. Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself."

The below eye-opening essay by Dr. Marcia Angell covers essential points in her highly acclaimed book The Truth About the Drug Companies. This essay is taken from the New York Review of Books, Volume 51, Number 12. Dr. Angell is a former editor in chief of the prestigious New England Journal of Medicine. She is currently a senior lecturer in social medicine at Harvard Medical School. The full title of the book is The Truth About the Drug Companies: How They Deceive Us and What to Do About It. Here are excerpts from and links to the book reviews of three leading US newspapers:

New York Times: "A scorching indictment of drug companies and their research and business practices ... tough, persuasive and troubling."

Boston Globe: "A sober, clear-eyed attack on the excesses of drug company power ... a lucid, persuasive, and highly important book."

Washington Post: "Always authoritative ... [this book] delivers the message—that drug-company money and power is corrupting American medicine—in a convincing, no-nonsense manner."

Part 1

Every day Americans are subjected to a barrage of advertising by the pharmaceutical industry. Mixed in with the pitches for a particular drug—usually featuring beautiful people enjoying themselves in the great outdoors—is a more general message.

Boiled down to its essentials, it is this: "Yes, prescription drugs are expensive, but that shows how valuable they are. Besides, our research and development costs are enormous, and we need to cover them. As 'research-based' companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care. You are the beneficiaries of this ongoing achievement of the American free enterprise system, so be grateful, quit whining, and pay up." More prosaically, what the industry is saying is that you get what you pay for.

Is any of this true? Well, the first part certainly is. Prescription drug costs are indeed high—and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year. [1] Drugs are the fastest-growing part of the health care bill—which itself is rising at an alarming rate. The increase in drug spending reflects, in almost equal parts, the facts that people are taking a lot more drugs than they used to, that those drugs are more likely to be expensive new ones instead of older, cheaper ones, and that the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.

Before its patent ran out, for example, the price of Schering-Plough's top-selling allergy pill, Claritin, was raised thirteen times over five years, for a cumulative increase of more than 50 percent—over four times the rate of general inflation. [2] As a spokeswoman for one company explained, "Price increases are not uncommon in the industry and this allows us to be able to invest in R&D." [3]In 2002, the average price of the fifty drugs most used by senior citizens was nearly $1,500 per drug for a year's supply. (Pricing varies greatly, but this refers to what the companies call the average wholesale price, which is usually pretty close to what an individual without insurance pays at the pharmacy.)

Paying for prescription drugs is no longer a problem just for poor people. As the economy continues to struggle ... employers are requiring workers to pay more of the costs themselves. Since prescription drug costs are rising so fast, payers are particularly eager to get out from under them by shifting costs to individuals. The result is that more people have to pay a greater fraction of their drug bills out of pocket. And that packs a wallop.

Many of them simply can't do it. They trade off drugs against home heating or food. Some people try to string out their drugs by taking them less often than prescribed, or sharing them with a spouse. Others, too embarrassed to admit that they can't afford to pay for drugs, leave their doctors' offices with prescriptions in hand but don't have them filled. Not only do these patients go without needed treatment but their doctors sometimes wrongly conclude that the drugs they prescribed haven't worked and prescribe yet others—thus compounding the problem.

The people hurting most are the elderly. When Medicare was enacted in 1965, people took far fewer prescription drugs and they were cheap. For that reason, no one thought it necessary to include an outpatient prescription drug benefit in the program. In those days, senior citizens could generally afford to buy whatever drugs they needed out of pocket. Approximately half to two thirds of the elderly have supplementary insurance that partly covers prescription drugs, but that percentage is dropping as employers and insurers decide it is a losing proposition for them.

For obvious reasons, the elderly tend to need more prescription drugs than younger people—mainly for chronic conditions like arthritis, diabetes, high blood pressure, and elevated cholesterol. In 2001, nearly one in four seniors reported that they skipped doses or did not fill prescriptions because of the cost. (That fraction is almost certainly higher now.) Sadly, the frailest are the least likely to have supplementary insurance.

At an average cost of $1,500 a year for each drug, someone without supplementary insurance who takes six different prescription drugs—and this is not rare—would have to spend $9,000 out of pocket. Not many among the old and frail have such deep pockets.

Furthermore, in one of the more perverse of the pharmaceutical industry's practices, prices are much higher for precisely the people who most need the drugs and can least afford them. The industry charges Medicare recipients without supplementary insurance much more than it does favored customers, such as large HMOs or the Veterans Affairs (VA) system. Because the latter buy in bulk, they can bargain for steep discounts or rebates. People without insurance have no bargaining power; and so they pay the highest prices.

In the past two years, we have started to see, for the first time, the beginnings of public resistance to rapacious pricing and other dubious practices of the pharmaceutical industry. It is mainly because of this resistance that drug companies are now blanketing us with public relations messages. And the magic words, repeated over and over like an incantation, are research, innovation, and American. Research. Innovation. American. It makes a great story.

But while the rhetoric is stirring, it has very little to do with reality. First, research and development (R&D) is a relatively small part of the budgets of the big drug companies—dwarfed by their vast expenditures on marketing and administration, and smaller even than profits. In fact, year after year, for over two decades, this industry has been far and away the most profitable in the United States. (In 2003, for the first time, the industry lost its first-place position, coming in third, behind "mining, crude oil production," and "commercial banks.") The prices drug companies charge have little relationship to the costs of making the drugs and could be cut dramatically without coming anywhere close to threatening R&D.

Second, the pharmaceutical industry is not especially innovative. As hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH).

The great majority of "new" drugs are not new at all but merely variations of older drugs already on the market. These are called "me-too" drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, we now have six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, and the newest, Crestor) on the market to lower cholesterol, all variants of the first. As Dr. Sharon Levine, associate executive director of the Kaiser Permanente Medical Group, put it:

"If I'm a manufacturer and I can change one molecule and get another twenty years of patent rights, and convince physicians to prescribe and consumers to demand the next form of Prilosec, or weekly Prozac instead of daily Prozac, just as my patent expires, then why would I be spending money on a lot less certain endeavor, which is looking for brand-new drugs?"[4]

Third, the industry is hardly a model of American free enterprise. To be sure, it is free to decide which drugs to develop (me-too drugs instead of innovative ones, for instance), and it is free to price them as high as the traffic will bear, but it is utterly dependent on government-granted monopolies—in the form of patents and Food and Drug Administration (FDA)-approved exclusive marketing rights. If it is not particularly innovative in discovering new drugs, it is highly innovative—and aggressive—in dreaming up ways to extend its monopoly rights.

And there is nothing peculiarly American about this industry. It is the very essence of a global enterprise. Roughly half of the largest drug companies are based in Europe. (The exact count shifts because of mergers.) In 2002, the top ten were the American companies Pfizer, Merck, Johnson & Johnson, Bristol-Myers Squibb, and Wyeth (formerly American Home Products); the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place). [5] All are much alike in their operations. All price their drugs much higher here than in other markets.

Since the United States is the major profit center, it is simply good public relations for drug companies to pass themselves off as American, whether they are or not. It is true, however, that some of the European companies are now locating their R&D operations in the United States. They claim the reason for this is that we don't regulate prices, as does much of the rest of the world. But more likely it is that they want to feed on the unparalleled research output of American universities and the NIH. In other words, it's not private enterprise that draws them here but the very opposite—our publicly sponsored research enterprise.

Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself. (Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions.)

If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), "It's not like buying a car or tennis shoes or peanut butter." People need to know that there are some checks and balances on this industry, so that its quest for profits doesn't push every other consideration aside. But there aren't such checks and balances.

Part 2

What does the eight-hundred-pound gorilla do? Anything it wants to.

What's true of the eight-hundred-pound gorilla is true of the colossus that is the pharmaceutical industry. It is used to doing pretty much what it wants to do. The watershed year was 1980. Before then, it was a good business, but afterward, it was a stupendous one. From 1960 to 1980, prescription drug sales were fairly static as a percent of US gross domestic product, but from 1980 to 2000, they tripled. They now stand at more than $200 billion a year.[6] Of the many events that contributed to the industry's great and good fortune, none had to do with the quality of the drugs the companies were selling.

The claim that drugs are a $200 billion industry is an understatement. According to government sources, that is roughly how much Americans spent on prescription drugs in 2002. That figure refers to direct consumer purchases at drugstores and mail-order pharmacies (whether paid for out of pocket or not), and it includes the nearly 25 percent markup for wholesalers, pharmacists, and other middlemen and retailers. But it does not include the large amounts spent for drugs administered in hospitals, nursing homes, or doctors' offices (as is the case for many cancer drugs). In most analyses, they are allocated to costs for those facilities.

Drug company revenues (or sales) are a little different, at least as they are reported in summaries of corporate annual reports. They usually refer to a company's worldwide sales, including those to health facilities. But they do not include the revenues of middlemen and retailers.

Perhaps the most quoted source of statistics on the pharmaceutical industry, IMS Health, estimated total worldwide sales for prescription drugs to be about $400 billion in 2002. About half were in the United States. So the $200 billion colossus is really a $400 billion megacolossus.

The election of Ronald Reagan in 1980 was perhaps the fundamental element in the rapid rise of big pharma—the collective name for the largest drug companies. With the Reagan administration came a strong pro-business shift not only in government policies but in society at large. And with the shift, the public attitude toward great wealth changed. Before then, there was something faintly disreputable about really big fortunes. You could choose to do well or you could choose to do good, but most people who had any choice in the matter thought it difficult to do both.

That belief was particularly strong among scientists and other intellectuals. They could choose to live a comfortable but not luxurious life in academia, hoping to do exciting cutting-edge research, or they could "sell out" to industry and do less important but more remunerative work.

Starting in the Reagan years and continuing through the 1990s, Americans changed their tune. It became not only reputable to be wealthy, but something close to virtuous. There were "winners" and there were "losers," and the winners were rich and deserved to be. The gap between the rich and poor, which had been narrowing since World War II, suddenly began to widen again, until today it is a chasm.

The pharmaceutical industry and its CEOs quickly joined the ranks of the winners as a result of a number of business-friendly government actions. I won't enumerate all of them, but two are especially important. Beginning in 1980, Congress enacted a series of laws designed to speed the translation of tax-supported basic research into useful new products—a process sometimes referred to as "technology transfer." The goal was also to improve the position of American-owned high-tech businesses in world markets.

The most important of these laws is known as the Bayh-Dole Act, after its chief sponsors, Senator Birch Bayh (D-Ind.) and Senator Robert Dole (R-Kans.). Bayh-Dole enabled universities and small businesses to patent discoveries emanating from research sponsored by the National Institutes of Health, the major distributor of tax dollars for medical research, and then to grant exclusive licenses to drug companies. Until then, taxpayer-financed discoveries were in the public domain, available to any company that wanted to use them. But now universities, where most NIH-sponsored work is carried out, can patent and license their discoveries, and charge royalties. Similar legislation permitted the NIH itself to enter into deals with drug companies that would directly transfer NIH discoveries to industry.

Bayh-Dole gave a tremendous boost to the nascent biotechnology industry, as well as to big pharma. Small biotech companies, many of them founded by university researchers to exploit their discoveries, proliferated rapidly. They now ring the major academic research institutions and often carry out the initial phases of drug development, hoping for lucrative deals with big drug companies that can market the new drugs. Usually both academic researchers and their institutions own equity in the biotechnology companies they are involved with. Thus, when a patent held by a university or a small biotech company is eventually licensed to a big drug company, all parties cash in on the public investment in research.

These laws mean that drug companies no longer have to rely on their own research for new drugs, and few of the large ones do. Increasingly, they rely on academia, small biotech startup companies, and the NIH for that. [7] At least a third of drugs marketed by the major drug companies are now licensed from universities or small biotech companies, and these tend to be the most innovative ones. [8] While Bayh-Dole was clearly a bonanza for big pharma and the biotech industry, whether its enactment was a net benefit to the public is arguable.

The Reagan years and Bayh-Dole also transformed the ethos of medical schools and teaching hospitals. These nonprofit institutions started to see themselves as "partners" of industry, and they became just as enthusiastic as any entrepreneur about the opportunities to parlay their discoveries into financial gain. Faculty researchers were encouraged to obtain patents on their work (which were assigned to their universities), and they shared in the royalties.

Many medical schools and teaching hospitals set up "technology transfer" offices to help in this activity and capitalize on faculty discoveries. As the entrepreneurial spirit grew during the 1990s, medical school faculty entered into other lucrative financial arrangements with drug companies, as did their parent institutions.

One of the results has been a growing pro-industry bias in medical research—exactly where such bias doesn't belong. Faculty members who had earlier contented themselves with what was once referred to as a "threadbare but genteel" lifestyle began to ask themselves, in the words of my grandmother, "If you're so smart, why aren't you rich?" Medical schools and teaching hospitals, for their part, put more resources into searching for commercial opportunities.

Starting in 1984, with legislation known as the Hatch-Waxman Act, Congress passed another series of laws that were just as big a bonanza for the pharmaceutical industry. These laws extended monopoly rights for brand-name drugs. Exclusivity is the lifeblood of the industry because it means that no other company may sell the same drug for a set period. After exclusive marketing rights expire, copies (called generic drugs) enter the market, and the price usually falls to as little as 20 percent of what it was. [9]

There are two forms of monopoly rights—patents granted by the US Patent and Trade Office (USPTO) and those exclusivity granted by the FDA. While related, they operate somewhat independently, almost as backups for each other. Hatch-Waxman, named for Senator Orrin Hatch (R-Utah) and Representative Henry Waxman (D-Calif.), was meant mainly to stimulate the foundering generic industry by short-circuiting some of the FDA requirements for bringing generic drugs to market. While successful in doing that, Hatch-Waxman also lengthened the patent life for brand-name drugs. Since then, industry lawyers have manipulated some of its provisions to extend patents far longer than the lawmakers intended.

In the 1990s, Congress enacted other laws that further increased the patent life of brand-name drugs. Drug companies now employ small armies of lawyers to milk these laws for all they're worth—and they're worth a lot. The result is that the effective patent life of brand-name drugs increased from about eight years in 1980 to about fourteen years in 2000.[10] For a blockbuster—usually defined as a drug with sales of over a billion dollars a year (like Lipitor or Celebrex or Zoloft)—those six years of additional exclusivity are golden. They can add billions of dollars to sales—enough to buy a lot of lawyers and have plenty of change left over. No wonder big pharma will do almost anything to protect exclusive marketing rights, despite the fact that doing so flies in the face of all its rhetoric about the free market.

As their profits skyrocketed during the 1980s and 1990s, so did the political power of drug companies. By 1990, the industry had assumed its present contours as a business with unprecedented control over its own fortunes. For example, if it didn't like something about the FDA, the federal agency that is supposed to regulate the industry, it could change it through direct pressure or through its friends in Congress.

The top ten drug companies (which included European companies) had profits of nearly 25 percent of sales in 1990, and except for a dip at the time of President Bill Clinton's health care reform proposal, profits as a percentage of sales remained about the same for the next decade. (Of course, in absolute terms, as sales mounted, so did profits.)

In 2001, the ten American drug companies in the Fortune 500 list ranked far above all other American industries in average net return, whether as a percentage of sales (18.5 percent), of assets (16.3 percent), or of shareholders' equity (33.2 percent).These are astonishing margins. For comparison, the median net return for all other industries in the Fortune 500 was only 3.3 percent of sales. Commercial banking, itself no slouch as an aggressive industry with many friends in high places, was a distant second, at 13.5 percent of sales. [11]

In 2002, as the economic downturn continued, big pharma showed only a slight drop in profits—from 18.5 to 17.0 percent of sales. The most startling fact about 2002 is that the combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion).[12] In 2003 profits of the Fortune 500 drug companies dropped to 14.3 percent of sales, still well above the median for all industries of 4.6 percent for that year. When I say this is a profitable industry, I mean really profitable. It is difficult to conceive of how awash in money big pharma is.

Drug industry expenditures for research and development, while large, were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profits but something usually called "marketing and administration"—a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade. [13] Note that this is two and a half times the expenditures for R&D.

These figures are drawn from the industry's own annual reports to the Securities and Exchange Commission (SEC) and to stockholders, but what actually goes into these categories is not at all clear, because drug companies hold that information very close to their chests. It is likely, for instance, that R&D includes many activities most people would consider marketing, but no one can know for sure.

For its part, "marketing and administration" is a gigantic black box that probably includes what the industry calls "education," as well as advertising and promotion, legal costs, and executive salaries—which are whopping. According to a report by the non-profit group Families USA, the former chairman and CEO of Bristol-Myers Squibb, Charles A. Heimbold Jr., made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. The chairman of Wyeth made $40,521,011, exclusive of his $40,629,459 in stock options. And so on. [14]

Part 3

If 1980 was a watershed year for the pharmaceutical industry, 2000 may very well turn out to have been another one—the year things began to go wrong. As the booming economy of the late 1990s turned sour, many successful businesses found themselves in trouble. And as tax revenues dropped, state governments also found themselves in trouble. In one respect, the pharmaceutical industry is well protected against the downturn, since it has so much wealth and power. But in another respect, it is peculiarly vulnerable, since it depends on employer-sponsored insurance and state-run Medicaid programs for much of its revenues. When employers and states are in trouble, so is big pharma.

And sure enough, in just the past couple of years, employers and the private health insurers with whom they contract have started to push back against drug costs. Most big managed care plans now bargain for steep price discounts. Most have also instituted three-tiered coverage for prescription drugs—full coverage for generic drugs, partial coverage for useful brand-name drugs, and no coverage for expensive drugs that offer no added benefit over cheaper ones. These lists of preferred drugs are called formularies, and they are an increasingly important method for containing drug costs. Big pharma is feeling the effects of these measures, although not surprisingly, it has become adept at manipulating the system—mainly by inducing doctors or health plans to put expensive, brand-name drugs on formularies.

State governments, too, are looking for ways to cut their drug costs. Some state legislatures are drafting measures that would permit them to regulate prescription drug prices for state employees, Medicaid recipients, and the uninsured. Like managed care plans, they are creating formularies of preferred drugs. The industry is fighting these efforts—mainly with its legions of lobbyists and lawyers. It fought the state of Maine all the way to the US Supreme Court, which in 2003 upheld Maine's right to bargain with drug companies for lower prices, while leaving open the details. But that war has just begun, and it promises to go on for years and get very ugly.

Recently the public has shown signs of being fed up. The fact that Americans pay much more for prescription drugs than Europeans and Canadians is now widely known. An estimated one to two million Americans buy their medicines from Canadian drugstores over the Internet, despite the fact that in 1987, in response to heavy industry lobbying, a compliant Congress had made it illegal for anyone other than manufacturers to import prescription drugs from other countries. [15] In addition, there is a brisk traffic in bus trips for people in border states, particularly the elderly, to travel to Canada or Mexico to buy prescription drugs. Their resentment is palpable, and they constitute a powerful voter block—a fact not lost on Congress or state legislatures.

The industry faces other, less familiar problems. It happens that, by chance, some of the top-selling drugs—with combined sales of around $35 billion a year—are scheduled to go off patent within a few years of one another. [16]

A Failure of Remedies: The Case of Big Pharma (An Essay)
Paul J. Zwier,
Reuben Guttman

“The lower the rate of a fraud’s detection, the higher the multiplier required to ensure that crime does not pay.”

—Chief Judge Esterbrook

United States v. Rogan (7th Circuit 2008)

Introduction

This Article examines the U.S. pharmaceutical industry and the harms imposed on individual patients and healthcare consumers—including private and government third party payers—from practices proscribed by Federal and State laws regulating marketing and pricing.

The Article pays particular attention to the False Claims Act (FCA), which has become the government’s primary civil weapon against fraudulent and/or wrongful conduct causing the expenditure of government dollars.

Passed by Congress in 1863, and amended most recently in 2010, the FCA allows the government to pursue an individual or entity that has filed, or caused to be filed, a “false or fraudulent” claim for payment with funds that in whole or in part came from the government. In addition to treble damages, the statute allows for civil penalties of between $5,000 and $11,000 for each “claim.” The FCA is unique in that it has a “qui tam” provision allowing private citizens to bring suit in the name of the government provided that their suit is not based on “public information” or, alternatively, that the individual bringing the suit is an “original source” of that information.

In United States v. Neifert-White Co., the Court explained that the FCA is a “remedial statute” which “reaches beyond ‘claims’ which might be legally enforced to all fraudulent attempts to cause the Government to pay out sums of money.” Yet, to the extent that common law fraud requires proving the element of “reliance,” the FCA is actually more expansive than a fraud statute because it captures claims or statements made recklessly in furtherance of government reimbursement; hence, the statute captures false or fraudulent claims.

Generally, where Medicare and Medicaid payers reimburse for drugs that are marketed through misrepresentations about safety, efficacy, quantity or pricing, or where sales have been tainted by “kickbacks,” the Government may be entitled to recovery under the FCA. In other words, to the extent that a drug is “misbranded” under the Food, Drug, and Cosmetics Act (FDCA), redress is available under the FCA where the wrongful conduct caused the expenditure of government monies.

In addition to treble actual damages, i.e. the amount of money expended for each prescription times three, the Government is entitled to a civil penalty for each prescription submitted or caused to be submitted for payment or approval.

Under the Park Doctrine, theoretically, the government can seek prison sentences for those who are in charge of companies when these illegalities occur, however, these remedies are almost never invoked. In 2015, Deputy Attorney General, Sally Yates, issued the much-publicized “Yates Memo” which encouraged a focus on the criminal and civil prosecution of corporate insiders who have steered their corporate ship on a criminal course.

Despite available remedies, the questions for legislators, regulators, candidates for office, and members of the media are: 1) whether available compliance enforcement mechanisms are being used and 2) whether proper remedies that have deterrent value are being imposed on both corporations and the individuals who run them. These are important questions because pharmaceutical fraud is a substantial drain on the economy and places citizens at physical peril.

Historically, the lion’s share of settlements with drug manufacturers have involved significant cash payments and the institution of Corporate Integrity Agreements (CIA), but no admission of wrongdoing, no loss of patents, and no restrictions on the particular company’s ability to sell its drugs in the marketplace. There is neither disclosure of core documents, nor evidence unearthed during the investigation, which may help reset the market for honest medical information about a pharmaceutical product. The Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) indicated that it will be more aggressive in imposing different remedies, including lifetime bans on individuals and companies that engage in off-label marketing or other kickback schemes. This has not occurred, even though OIG also has issued guidelines regarding when it might revoke a patent, sell it, or otherwise take profits from the big companies.

To be fair, the blame does not rest solely with the Department of Justice (DOJ). In civil enforcement, the DOJ acts as the law firm for client agencies, including the Centers for Medicare and Medicaid Services (CMS), which is a part of HHS. CMS implements the Medicare program through vendors and lacks the fundamental ability to directly and expeditiously track expenditures, or to monitor whether the vendors are making reimbursement payments in accordance with regulation. A glaring consequence of this inability is the payment for drugs for uses that are not medically supported. The question of whether the use—if not within the FDA approved indication—is medically supported, is another problem. CMS has by regulation identified private contractors—i.e. the ‘Compendia”—who are responsible for determining whether an off–label use is medically supported. These contractors often rely on industry paid doctors for guidance, as their conflicts of interest policies do not proscribe industry relationships. CMS has simply neglected to properly monitor Compendia publishers.

Without a CMS’ handle on expenditures, the DOJ seems to have entered settlements absent any transparent damage models with the litmus test for fairness seemingly hinging on whether the settlement has the optics of deterrence. Unfortunately, when viewed from an historical context, remedies have had little impact on the behavior of the big pharmaceutical companies in their pricing and marketing practices.

Big Pharma practices present a case study for determining whether agencies should use other remedies to bring about better behaviors and whether courts, in approving settlements, should exercise diligence in determining the applicability of remedies. The question is why traditional remedies have failed to provide the necessary deterrence and what practical solutions exist. This Article provides analysis of the problem and raises the prospect of long term and short term solutions which include:

  • The promulgation of formal DOJ guidance on settlements with pharmaceutical manufacturers and others in the stream of commerce, including a requirement that Civil Penalties under the FCA not be waived;

  • The issuance of DOJ reports, which make public the facts and documents unearthed during investigations that result in settlements of cases that lacked the transparency of formal litigation;

  • The release, under the Freedom of Information Act, of all documents maintained by the FDA with regard to a drug or product that was the subject of a settlement of misbranding or kickback allegations;

  • Legislation allowing CMS to bargain with manufactures or to use price referencing systems—as exists in Europe and Canada—to lower the cost of drugs;

  • The imposition of criminal and civil penalties on corporate officials who oversee marketing activities that have the potential to place patients at peril; and

  • Complete oversight of CMS to analyze whether inherently public functions are imprudently privatized and whether functions properly performed by private vendors are monitored for compliance with regulatory obligations.

Part 1 of this Article looks at the market for pharmaceuticals, its profitability, and its risks. It evaluates pricing of pharmaceuticals and the incentives in the market that seem to cause institutional behaviors that drive illegal conduct. In addition, it briefly examines why faith in the free market, which theoretically should moderate the behavior of actors out of fear that consumers will simply choose a different provider, fails in the case of pharmaceuticals.

Part 2 of this Article examines the failures of the existing traditional remedies in the FCA and the related actions to adequately compensate, deter, and punish for Big Pharma’s illegality. In particular, it examines repeat offenders in the pharmaceutical market, and notes that the problem may lie most with companies without either real competition for their particular drugs, or a diversified portfolio of generic products as part of their offerings. It also examines the promise of CIAs to bring more integrity into the relationship of manufacturers and consumers. It questions why such agreements that contain promises—including that a court can ban companies that persist if they engage in future off-label marketing—have not been enforced in settlements with the DOJ. It also demonstrates how revoking a company’s patent can disrupt future patients’ ability to get the appropriate drugs they need, and as a result make the remedy unattractive. At least until the generic market can meet this need, the court may be hesitant to revoke the patent. It examines whether as a matter of remedies, the court should be empowered to count as damages future sales of the patented drug as a basis for deterring the fraudulent behavior. It illustrates how such remedies may run afoul of the Constitution. As a result, the company may bet that its ability to continue to sell the drug in its markets will make up for the risks it incurs in engaging in deceitful behavior in establishing the market in the first place. Without the ability to confiscate future profits as a remedy, it is unlikely that the behavior of Big Pharma will be significantly deterred, as the gains are too tempting, and chances that any one individual gets caught are too low.

Finally, we conclude by proposing a combination of remedies and ask whether pricing regulation, either through CMS, or by allowing insurance companies to combine forces to negotiate lower price, needs to be a necessary part of these remedies to Big Pharma’s illegal practices.

I. Pharmaceuticals, Profits and Risks

Among corporations, pharmaceutical companies are unique. Their brand and reputation is premised on the notion that they cater to patients in perilous health by producing products that are safe and effective. Although not bound to the Hippocratic Oath taken by doctors who order their products through prescriptions, their brand implies the same level of obligation—“do no harm.” Yet the question of whether the patient is the customer is a murky matter; a doctor writes the prescription for a person whose bill is often paid by third parties, many of whom disperse federal and state health care dollars. Obligations to investors and efforts to maximize stock price for the benefit of corporate officers, desiring to cash in on stock options, are externalities driving unlawful behavior. And at an emotional level, there is undoubtedly the perception—on Wall Street and within the corporation itself—that no regulator is going to face the political backlash of jeopardizing the long-term viability of businesses manufacturing pills that prolong life.

Against this backdrop, Big Pharma was able to fly under the radar with business practices placing consumers’ safety in jeopardy, while causing the unnecessary expenditure of government health care dollars. The Federal Bureau of Investigation estimates that health care fraud costs American taxpayers $60 billion a year. Some estimates contend the Medicare program alone constitutes over $600 billion lost to fraudulent activity by the health care profession, generally, in the last ten years. Based on these numbers alone, it is astonishing that candidates for office and the journalists who pose the questions in debates have not made this a focal point for political discourse.

As part of the settlements, many companies are required to enter into self-policing agreements called CIAs. Notwithstanding their existence, repeat offenders are common, as in the case of companies including Abbott and Pfizer.

With fraud unchecked, medical costs continue to rise far in excess of inflation. More troubling is that the increase in the cost of health care is mostly attributable to rising pharmaceutical prices. Dan Muro, a frequent contributor to Forbes magazine who closely follows health care costs, noted the following:

An estimated 576,000 Americans spent more than the median household income on prescription medications in 2014. This population of patients grew an astounding 63% from 2013. Further, the population of patients with costs of $100,000 or more nearly tripled during the same time period, to nearly 140,000 people. The total cost impact to payers from both patient populations is an unsustainable $52 billion a year.

. . .Across the board increases in prescription drug costs were cited as the primary cause for the higher total percentage increase in health care costs (6.3% this year versus 5.4% in 2014).

The rate at which prescription drug costs increased this year doubled over the average increase of the prior five years. This was driven by a combination of factors, including the introduction of new specialty drugs, a continued increase in compound drugs, and price increases for both brand name and generic drugs.

There is no evidence of rising overhead or tightened profit margins as causes for price escalation. The World Health Organization estimates that, worldwide in 2014, pharmaceutical companies scored in excess of $300 billion in profits; with profits headed to $400 billion over the next three years.

A look at Medicare disbursements provides insight into the problem. The total amount of Medicare reimbursement for pharmaceuticals in 2015 is estimated at $85 billion, or 14% of the total Medicare health care expenditures. These include both Medicare B plan reimbursements, (for drugs administered in an outpatient or hospital setting), and Medicare D plans, (for drugs outside the hospital setting). In the U.S., the free market sets the price for drugs except that the largest payer, Medicare, lacks statutory authority to bargain, let alone bargain collectively with other payers. Although Medicare has some leverage over what it pays (Medicare will only pay the price of the lowest cost generic, where generics exist, unless doctor provides justification ), it has little ability to negotiate down the cost of drugs.

When one examines the costs by type of drug and compares this with what one who needs the drug has to pay outside the U.S., one can see how the unregulated market for drugs in the U.S. makes for run-away pricing. High prices are in place for most categories of drugs sold in the U.S. From cancer drugs to pain-killers, cholesterol lowering drugs to nasal sprays, drugs for impotence to asthma to diabetes, U.S. citizens pay much higher prices than Canadians and Europeans.

Although there are features of the production and patenting of pharmaceuticals that make drugs costly to produce, in contrast to publicly regulated utilities that also have a government sanctioned monopoly, the same transparency is lacking with regard to expenditures or stranded costs. Against this backdrop, the industry claims that the testing and FDA approval process often eats up 10-12 of the 20 years that the owner has the exclusive ability to sell the drug. This leaves 8 to 10 years for the owner to recoup costs before generic competition for a successful drug will start. One wonders why then that drug prices, even after generics hit the market, remain so high in the U.S. Why doesn’t competition from generics eventually moderate the cost of drugs? There are a number of reasons. Medicare Part B prescriptions make up a relatively small percentage of overall prescriptions in the U.S. Other prescriptions are covered by multiple plans and payers. The non-generic manufacturer also is taking advantage of the physician’s presumptive ethical responsibilities to prescribe without regard to price. In addition, with many pharmaceuticals, the patient has little say regarding what he or she pays. They may have little information as to the cost, or they may think they do not have a choice; with cancer drugs to heart medications, failure to take the drugs appears to be life threatening. Moreover, Big Pharma engages in repackaging its drugs in strategies that allow it to extend the life of its drug, often in collusion with some generic manufacturers.

Finally, antitrust law allows a certain amount of collusion among label and generic manufacturers of drugs. In order to incentivize the making of generics, a company can submit its application for a generic of a name brand drug to the FDA, subject to the Orange Book listing of the name brand drug, in the time leading up to name brand drug’s expiration. The name brand manufacturer must look at the formula and determine if it wants to attempt to extend the patent through a supplement or improvement to the existing patent. It can extend the life of the drug by adding features or new methods of delivery. In the process the two can agree to “split up the market” for the drug between them, to insure some spaces to continue to sell the drug under different advertising campaigns. As a result, generics end up costing more in the U.S. than elsewhere, where the price may be regulated and physicians continue to prescribe the name brand because they are either confused, worried about the generics being lower quality, or sticking with what works, as opposed to taking risks with the alternatives.

The combination of the uncertain line between extortion and free market pricing by supply and demand, the unique nature of the health care need for certain drugs, the ability of companies to get patents for their drugs, the collusive relationship between named brand manufacturers and generic manufacturers, the responsibility of doctors for prescribing the drug, and the inability of insurance companies to collectively bargain for price all adds up to a system that routinely gouges society in the prices it pays for its drugs.

II. Remedies Under the False Claims Act, Their Failure to Adequately Compensate and Deter Big Pharma’s Behavior

The need to deter Big Pharma’s fraud by actors cloaked by the cover of large institutional unanimity remains a major challenge for the U.S. brand of free market democracy where the government is a both a regulator and a payer for care. The temptation to commit fraud by big institutions that do business in mass markets for goods—while focusing on maximizing profits and growing shareholder value each year—has always been great, but it is particularly acute where that business provides life-saving drugs. Cost sensitivities of individual consumers are absent, the physician intermediary/pharmaceutical coinsurer is often forbidden by medical ethics to take account of the costs, and hospitals often are more than willing to mark-up costs as they also pursue bottom line profits.

Perhaps the reason is confusion in the actors’ mind between market place pricing that is set by supply and demand, and behavior that is condemned as extortion, or at the very least exorbitant in nature. Where someone extorts $1,000 for a loaf of bread to a starving person, or $500 for a glass of water to a person dying of thirst, the exorbitant nature of the pricing is plain. Where the price is $100,000.00 for a cancer saving drug, the outrage may be the same, but the nature of the market might cover its extortive characteristics in the language of supply and demand. The “free market” has a difficult time in restricting pricing that takes advantage of one’s illness. What further exacerbates the dilemma is that existence of insurance (and its mixed motive—the more it pays, the more it can charge ) often makes the cost of the drug hard to discover. Moreover, HHS is forbidden in the U.S. from bargaining collectively with pharmaceutical companies for lower costs for drugs. Despite the fact that Medicare and Medicaid at one time only reimbursed at the price point of the lowest priced generic, private insurers were incentivized against negotiating similar restrictions on what they/it pays. Individual insurers are immune from antitrust regulations for collusive bargaining over drugs and can engage in pricing agreements with pharmaceutical companies that result in higher prices of drugs on the market. Even though the Veterans Administration (VA) pays approximately 40 percent of what the private insurance companies pay for the same drugs, U.S. law is protective of its “free market” and forbids collective bargaining, out of fear that lower prices may restrict the research and development of new drugs.

Curiously, there is some question as to what Big Pharma actually means when it says it puts money into research and development. Is it putting money into studies or trials that will develop data to be submitted to the FDA to secure a new or expanded indications or to meet post marketing requirements, or is it developing data to be used to support journal articles that will be used to spin off label messages causing revenue to be secured from uses outside the FDA approved indication? In other words, are purported Research and Development monies really just expenditures in furtherance of illegal marketing goals as opposed to legitimate regulatory requirements?

The chance of making huge short-term profits with impunity seems to overwhelm a decision-maker’s calculation of the consequential harm his or her decision may cause and overwhelms his or her calculation of the risks of getting caught. The harm caused can be nonetheless significant and the need for strategies of adequate deterrence an important societal priority.

There are three areas in particular where the willingness of institutions to defraud by ignoring health care costs in their pursuit of profits seems to be on the rise. The first is in the area of misbranding and its subcategory, off-label marketing, which is a violation of the FDCA redressable under the FCA. The second is the provision of kickbacks to physicians for prescribing or recommending their drugs. The third are strategies with generic companies to enter into settlements that divide up the market for a particular drug and keep the overall cost of the drugs higher than what can be justified by the drugs’ benefits. In the first two cases, the institutions are engaged in Medicare fraud as they charge the public for products of questionable benefit or for uses that raise significant safety concerns. The number and size of these cases have increased to such an extent that the government itself seems almost complicit in the illicit behavior. The subject institutions pay enormous fines in settlement, so the government drops the cases. Most troubling, however, is that often the institutions continue their activities—defrauding the markets and the government and paying the fines simply as a cost of doing business.

The available data from the organization, the Project on Government Oversight, Pogo.org/DOJ.org, supports the claim that pharmaceutical companies have not been deterred by the large fines imposed by the DOJ and perhaps consider any amount they might pay for liability as the cost of doing business.

A survey of settlements between the Justice Department and Big Pharma since 2009, in excess of $75 million, provides plenty of troubling examples. We take our reports of cases and settlements from the following sources: Justice News, Department of Justice, http://www.justice.gov/justice-news; and, Project on Government Oversight, http://www.pogo.org (survey by research assistant of Justice Department reports, and POGO listings.)

Settlements between pharmaceutical companies and the Justice department since 2009 consisting—time of publication—of $75 million or more:

Company Name, Drug Name, Settlement, Date

1. GlaxoSmithKline, Paxil, and Wellbutrin, $3 billion, 2012

2. Pfizer, Bextra, $2.3 billion, 2009

3. Abbott Laboratories, Depakote, $1.5 billion, 2012

4. Eli Lilly, Zyprexa, $1.4 billion, 2009

5. Amgen, Aranesp, $762 million, 2012

6. GlaxoSmithKline, Kytril/Bactroban/Paxil CR/Avandamet, $750 million, 2010

7. Allergan, Botox, $600 million, 2010

8. AstraZeneca, Seroquel, $520 million, 2010

9. Ranbaxy Laboratories, Gabapentin, $500 million, 2013 (Indian)

10. Novartis, Trileptal, $423 million, 2010

11. Merck, Vioxx, $322 million, 2011

12. Forest Laboratories, Levothroid, Celexa, Lexapro, $313 million, 2010-off-label promotion

13. Dey Pharma, Albuterol Sulfate/Albuterol MDI, Cromolyn Sodium/Ipratropium Bromide, $280 million, 2010—False Claims Act over reported prices—or getter payment rates

14. Wyeth Pharmaceuticals, Rapamune, $256.4 million, 2013-off-label promotion

15. Johnson and Johnson, Topamax, $81 million, 2010

16. Johnson and Johnson, Risperdal/Invega/Natrecor, $2.2 billion, 2013-off-label promotion

17. Endo Pharmaceuticals, Lidoderm, $171.9 million, 2014

18. Sanofi, Hyalgan, $109 million, 2012 (French)

19. Elan, Zonegran, $203.5 million, 2010

20. Boehringer Ingelheim, Aggrenox, Atrovent/Combivent, Micardis, $95 million, 2012

A list of pharmaceutical companies that have been penalized multiple times by the DOJ since 2001 follows. This partial list includes information compiled from Pogo.org and DOJ.org. POGO is an independent watchdog organization that describes itself as follows:

Company

And Date of Settlement

Conduct Type

Settlement

And net profit reported when known

Synopsis

Johnson & Johnson

2001

Fraudulent Pricing

$3,750,000

2013

Off-label Marketing

$2.2 Billion

NP (2007-2012): $4,858,000,000 (Risperdal) + $424,000,000 (Invega) + $441,000,000 (Natrecor)

J&J and its subsidiaries, Janssen Pharmaceuticals and Scios Inc., paid $2.2 billion to resolve criminal and civil liability arising from allegations relating to the prescription drugs Risperdal, Invega and Natrecor, including promotion for uses not approved as safe and effective by the Food and Drug Administration (FDA) and payment of kickbacks to physicians and to the nation’s largest long-term care pharmacy provider. In addition to monetary sanctions, this settlement placed J&J under a five-year CIA.

Abbott Laboratories

2001

Fraudulent drug pricing of Lupron and kickbacks

$568 million

Net profit was reported after the settlement payout. This amount was a 4% increase over the prior year (2000).

TAP Pharmaceutical, a subsidiary of Abbott Laboratories and Takeda Industries, set and controlled the price at which the Medicare program reimbursed physicians for the prescription of Lupron by reporting its average wholesale price (“AWP”). The AWP reported by TAP was significantly higher than the average sales price TAP offered physicians and other customers for the drug. The Government alleged that TAP marketed the spread between its discounted prices paid by physicians and the significantly higher Medicare reimbursement based on AWP as an inducement to physicians to obtain their Lupron business. The Government further alleged that TAP concealed the true discounted prices paid by physicians from Medicare, and falsely advised physicians to report the higher AWP, rather than their real discounted price for the drug. The Government further alleged that TAP set its AWPs of Lupron at levels far higher than the price for which wholesalers or distributors actually sold the drug, resulting in falsely inflated prices that were neither the physician’s actual cost nor the true wholesaler’s average price. As part of this settlement, TAP agreed to comply with the terms of a sweeping CIA which changes the manner in which TAP supervises its marketing and sales staff, and ensures that TAP will report to the Medicare and Medicaid programs the true average sale price for drugs reimbursed by those programs.

2003

Fraudulent pricing of enteral feeding products

$382 million

(2003)$2,855,000,000

In July 2003, Abbott Laboratories, Inc., entered into a $600 million combined criminal and civil resolution of allegations against its Ross Products division relating to the manner in which it marketed its enteral feeding products. According to the complaint, Abbott was counseling DME suppliers to submit “bundled” claims to the Medicare program for feeding pumps and tubing. The bundled claims resulted in two products being billed as a single product at a higher price than if billed separately. As part of the settlement, Abbott entered into a five-year CIA.

2010

Fraudulent pricing of several drugs

$126 million

(2009): $7.86 Billion

Abbott agreed to pay $126,500,000 for reporting false and inflated prices for numerous pharmaceutical products. The actual sales prices for the products were far less than what Abbott reported. The difference between the resulting inflated government payments and the actual price paid by healthcare providers for a drug is referred to as the “spread.” The larger the spread on a drug, the larger the profit for the health care provider or pharmacist who gets reimbursed by the government. The government alleges that Abbott created artificially inflated spreads to market, promote and sell dextrose solutions, sodium chloride solutions, sterile water, vancomycin and erythromycin.

2010

Off-label marketing of Advicor and kickbacks

$41 million

(2009): $7.86 Billion

Kos Pharmaceuticals, a subsidiary of Abbott Laboratories, paid more than $41 million to resolve criminal and civil liability arising from conduct relating to its drugs Advicor and Niaspan. Specifically, the civil settlement resolves allegations that Kos offered and paid doctors, other medical professionals, physician groups and managed care organizations, illegal kickbacks in the form of money, free travel, grants, honoraria and other valuable goods and services, in violation of the Anti-Kickback Statute to get them to prescribe or recommend Niaspan and Advicor.

In addition, the United States contends that Kos promoted the sale and use of Advicor for use as first-line therapy for management of mixed dyslipidemias (a disruption of the lipids in the blood). Such an off-label use was not approved by the Food and Drug Administration nor was it a medically-accepted indication for which the United States and state Medicaid programs provided coverage for Advicor. As part of the settlement, Kos has entered into a deferred prosecution agreement. The DOJ agreed to enter into a deferred prosecution agreement with Kos based in part on the company’s undertaking of a thorough internal investigation of misconduct; its reporting of information from the investigation to the department on a regular basis; its continued and ongoing cooperation with the department’s investigation of the matter; and in recognition of the remedial measures undertaken by the company.

2012

Off-label marketing of Depakote

$1.5 Billion

$5. 12 Billion

Abbott agreed to pay $1.5B to resolve its criminal and civil liability arising from the company’s unlawful promotion of the prescription drug Depakote for uses not approved as safe and effective by the Food and Drug Administration (FDA). The company misbranded Depakote by promoting the drug to control agitation and aggression in elderly dementia patients and to treat schizophrenia when neither of these uses was FDA approved. In addition to the criminal and civil resolutions, Abbott also executed a CIA. The five-year CIA requires, among other things, that Abbott’s board of directors review the effectiveness of the company’s compliance program, that high-level executives certify to compliance, that Abbott maintain standardized risk assessment and mitigation processes, and that the company post on its website information about payments to doctors. Abbott is subject to exclusion from federal healthcare programs, including Medicare and Medicaid, for a material breach of the CIA and subject to monetary penalties for less significant breaches

2013

Kickbacks

$5,475,000

2013 2.6 Billion

Abbott knowingly paid prominent physicians for teaching assignments, speaking engagements and conferences with the expectation that these physicians would arrange for the hospitals with which they were affiliated to purchase Abbott’s carotid, biliary and peripheral vascular products.

Glaxo Smith Kline

2003

Fraudulent Pricing

87.6 million

GSK agreed to pay the government a civil fine of $87.6 million for failing to give the Medicaid program the lowest price charged to any consumer for anti-depressant Paxil and nasal allergy spray Flonase. GSK was accused of hiding its lowest prices from Medicaid by repackaging or relabeling its products under a middleman’s name, who then sold them at a deep discount not reported to the government.

2004

Failure to disclose side effects

2.5 million

GSK suppressed the results of studies which failed to prove Paxil’s effectiveness and which suggested a possible increased risk of suicidal thoughts and acts in certain individuals. GSK was further alleged to have failed to disclose this information in medical information letters it sent to physicians.

2005

Fraudulent Pricing

150 million

GlaxoSmithKline paid over $150 million to settle allegations of fraudulent drug pricing and marketing of the anti-emetic drugs Zofran and Kytril. GSK allegedly engaged in a scheme to set and maintain inflated prices for Zofran and Kytril. The government also alleged GSK engaged in a “double dipping” billing scheme with respect to Kytril by encouraging customers to pool leftover vials of Kytril to create an extra dose, which would then be administered to a patient and re-billed to government healthcare programs.

2010

Fraudulent marketing of Avandia

Settlement amount: pending

GlaxoSmithKline marketed its Avandia diabetes drug as a new “wonder drug” that would reduce cardiovascular risks for diabetics at a time when studies found that Avandia significantly increased cardiovascular risks.

2010

Fraudulent Pricing

10 Million

The state of Hawaii settled with dozens of pharmaceutical companies, including GlaxoSmithKline, which were accused of gouging Hawaii’s Medicaid program for more than a decade by fraudulently inflating their prescription drug prices.

2010

Deceptive Marketing

$3,750,00

GlaxoSmithKline agreed to pay $3,750,000 to settle allegations of deceptive or false marketing of the anti-nausea drugs Kytril and Zofran. The complaint alleged that GSK improperly inflated the average wholesale price (AWP) for the drugs.

2010

Manufacturing of adulterated drugs

750 million

SB Pharmco Puerto Rico Inc., a subsidiary of GlaxoSmithKline, agreed to plead guilty to felony charges relating to the manufacture and distribution of certain adulterated drugs made at GSK’s, now closed, Cidra, Puerto Rico, manufacturing facility. The resolution included a criminal fine and forfeiture totaling $150 million and a civil settlement under the FCA for $600 million. The drugs, manufactured at the plant between 2001and 2005, included Kytril, Bactroban, Paxil CR and Avandamet.

2011

Attempt to sell adulterated drugs

$40.75 million

GlaxoSmithKline agreed to pay nearly $41 million to settle charges that the company tried to sell drugs made in a Puerto Rican plant that failed to meet manufacturing standards. The attorneys general alleged that, between 2001 and 2004, GlaxoSmithKline and its SB Pharmco Puerto Rico subsidiary engaged in unfair and deceptive practices when they manufactured and distributed certain lots of Kytril, Bactroban, Paxil CR, and Avandamet, produced in a plant in Cidra, Puerto Rico.

2012

Fraudulent Marketing of Paxil, Wellbutrin, and failure to disclose safety data, and fraudulent pricing

$3 Billion

GlaxoSmithKline agreed to plead guilty and to pay $3 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of Paxil, Wellbutrin and Avandia, its failure to report certain safety data, and its civil liability for alleged false price reporting practices. From April 1998 to August 2003, GSK unlawfully promoted Paxil for treating depression in patients under age 18, even though the FDA has never approved it for pediatric use. From January 1999 to December 2003, GSK promoted Wellbutrin, approved at that time only for Major Depressive Disorder, for weight loss, the treatment of sexual dysfunction, substance addictions and Attention Deficit Hyperactivity Disorder, among other off-label uses. Between 2001 and 2007, GSK failed to include certain safety data about Avandia, a diabetes drug, in reports to the FDA that are meant to allow the FDA to determine if a drug continues to be safe for its approved indications and to spot drug safety trends. Between 1994 and 2003, GSK and its corporate predecessors reported false drug prices, which resulted in GSK’s underpaying rebates owed under the Medicaid Drug Rebate Program. GSK also executed a five-year CIA.

Pfizer

2002

Fraudulent Pricing

$49 Million

In October 2002, Pfizer and its subsidiaries Warner-Lambert and Parke-Davis paid $49 million to resolve FCA charges that it had fraudulently avoided paying rebates owed to state and federal health programs by failing to report best prices for its cholesterol drug Lipitor.

2004

Off-label marketing of Neurontin

$420 million

In 1993, the FDA approved Neurontin solely for anti-seizure use by epilepsy patients. However, Warner-Lambert, a Pfizer subsidiary, aggressively marketed Neurontin for a variety of other treatments, including bipolar disorder (even though scientific studies had shown that a placebo worked better for this disorder), none of which had been approved by the FDA. As part of the settlement agreement, Pfizer also agreed to enter into a CIA with the Department of Health and Human Services.

2005

Off-label marketing of Bextra

$2.3 Billion

Pfizer and its subsidiary Pharmacia & Upjohn (Pharmacia) promoted the sale of Bextra for uses and at dosages the FDA specifically declined to approve for safety reasons. Under the terms of this settlement, Pfizer entered into a five-year CIA.

2010

Fraudulent Pricing

$8.2 million

The state of Hawaii settled with dozens of pharmaceutical companies, including Pfizer, which were accused of gouging Hawaii’s Medicaid program for more than a decade by fraudulently inflating their prescription drug prices.

2011

Off-label marketing of Detrol

$14.5 Million

Pfizer illegally marketed Detrol, a drug for the treatment of overactive bladder, for use in male patients suffering from benign prostatic hypertrophy and several allied conditions, notably lower urinary tract symptoms and bladder outlet obstruction—all uses for which the FDA had not approved the drug as safe and effective. Since August 2009, Pfizer has been under a CIA with the Department of Health and Human Services, which remains in effect.

2012

Foreign Bribery

$15 Million

Pfizer agreed to pay a $15 million penalty to resolve an investigation of Foreign Corrupt Practices Act (FCPA) violations. Pfizer admitted that between 1997 and 2006, it paid more than $2 million of bribes to government officials in Bulgaria, Croatia, Kazakhstan and Russia in order to improperly influence government decisions in these countries regarding the approval and registration of Pfizer Inc. products.

2012

Off-label marketing of Protonix

$55 million

Protonix is a proton pump inhibitor (PPI) that was used by physicians to treat various forms of gastro-esophageal reflux disease (GERD). Wyeth, a Pfizer subsidiary, sought and obtained approval from the FDA to promote Protonix for short-term treatment of erosive esophagitis—a condition associated with GERD that can only be diagnosed with an invasive endoscopy. However, the government alleges that Wyeth fully intended to, and did, promote Protonix for all forms of GERD, including symptomatic GERD, which was far more common and could be diagnosed without an endoscopy. In addition, Wyeth allegedly promoted Protonix as the “best PPI for night-time heartburn.” even though there was never any clinical evidence that Protonix was more effective than any other PPI for night-time heartburn. Since August 2009, Pfizer has been under a CIA with the Department of Health and Human Services, which remains in effect.

2013

Off-label marketing of Rapamune

$490.9 million

Wyeth Pharmaceuticals Inc., a pharmaceutical company acquired by Pfizer Inc. in 2009, agreed to pay $490.9 million to resolve its criminal and civil liability arising from the unlawful marketing of the prescription drug Rapamune for uses not approved as safe and effective by the U.S. FDA. Rapamune is an immunosuppressive drug that prevents the body’s immune system from rejecting a transplanted organ. In 1999, Wyeth received approval from the FDA for Rapamune use in renal (kidney) transplant patients. However, Wyeth encouraged sales force members, through financial incentives, to target all transplant patient populations to increase Rapamune sales.

Sanofi-Aventis

2007

Fraudulent pricing

$190.4 million

Aventis Pharmaceuticals agreed to pay $190.4 million “to resolve allegations that the company caused false claims to be filed with Medicare and other federal health programs as a result of the company’s alleged fraudulent pricing and marketing of drugs.” The case involved the pricing between 1997 and 2004 of Anzemet, a treatment given to cancer patients after chemotherapy. The government alleged Aventis engaged in a scheme to set fraudulent and inflated prices for Anzemet. As part of the settlement, Aventis agreed to enter into a CIA that will require the company to report accurate average sales prices and average manufacturers’ prices for its drugs.

2009

Fraudulent pricing

$95 million

Aventis Pharmaceutical Inc., a wholly owned subsidiary of Sanofi-Aventis, agreed to pay the United States $95.5 million to settle allegations that it violated the FCA by misreporting drug prices in order to reduce its Medicaid Drug Rebate obligations. The settlement resolves allegations that between 1995 and 2000, Aventis and its corporate predecessors knowingly misreported best prices for the steroid-based anti-inflammatory nasal sprays Azmacort, Nasacort and Nasacort AQ. In order to avoid triggering a new best price that would obligate it to pay millions of dollars in additional drug rebates to Medicaid, Aventis entered into “private label” agreements with the HMO Kaiser Permanente that simply repackaged Aventis’ drugs under a new label. As a result, Aventis underpaid drug rebates to the Medicaid program and overcharged certain Public Health Service entities for these products.

2012

Kickbacks

$109 million

Sanofi-Aventis agreed to pay $109 million to resolve allegations that Sanofi US violated the FCA by giving physicians free units of Hyalgan, a knee injection, in violation of the Anti-Kickback Statute, to induce them to purchase and prescribe the product. The settlement also resolves allegations that Sanofi US submitted false average sales price (ASP) reports for Hyalgan that failed to account for free units distributed contingent on Hyalgan purchases.

Amgen

2012

Off-label marketing of Aranesp

$762 million

Aranesp is an erythropoiesis-stimulating agent (ESA) that was approved by the FDA at certain doses for certain patient populations suffering from anemia. Amgen illegally misbranded Aranesp by promoting it for “off-label” doses that the FDA specifically rejected and for an “off-label” treatment that the FDA never approved. For example, Amgen illegally promoted Aranesp to treat anemia caused by cancer, irrespective of whether the patient had been prescribed chemotherapy—a use for which Aranesp was never approved. In fact, in 2007, the FDA mandated that a “black box” warning be added to Aranesp’s label stating that when administered to certain target levels Aranesp “increased the risk of death” in patients with cancer who were not receiving chemotherapy or radiation. Further, Amgen offered illegal kickbacks to a wide-range of entities in an effort to influence health care providers to select its products for use, regardless of whether they were reimbursable by federal healthcare programs or were medically necessary. As part of the global settlement, Amgen also agreed to enter into a CIA.

2013

Kickbacks

$24.9 million

The settlement resolves allegations that Amgen paid kickbacks to long-term care pharmacy providers Omnicare Inc., PharMerica Corporation and Kindred Healthcare Inc. in return for implementing “therapeutic interchange” programs that were designed to switch Medicare and Medicaid beneficiaries from a competitor drug to Aranesp. The government alleged that the kickbacks took the form of performance-based rebates that were tied to market-share or volume thresholds. The government further alleged that, as part of the therapeutic interchange program, Amgen distributed materials to consultant pharmacists and nursing home staff encouraging the use of Aranesp for patients who did not have anemia associated with chronic renal failure.

2013

Kickbacks

$15 million

Xgeva, which is the brand name of the drug Denosumab, was approved by the FDA in late 2010 for use with certain cancer patients undergoing chemotherapy. It is most commonly prescribed for patients with metastatic bone disease in order to prevent skeletal-related adverse events.

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