Health Care in America - Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry - 1st Published 3/6/2012

.

The Broken American Health Care System

Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010

Sammy Almashat, M.D., M.P.H, Charles Preston, M.D., M.P.H, Timothy Waterman, B.S., Sidney Wolfe, M.D.

Public Citizen’s Health Research

Group EXECUTIVE SUMMARY

Background

U.S. spending on prescription drugs has increased from $40 billion in 1990 to$234 billion in 2008. In this era of rapidly rising drug costs, the illegal pharmaceutical company activities that have contributed to such inflated spending have garnered a significant amount of media attention. Recent billion-dollar settlements with two of the largest pharmaceutical companies in the world, Eli Lilly and Pfizer, provide evidence of the enormous scale of this wrong doing.  However, the total size, varied nature, and potential impact of these illegal and potentially dangerous activities have not been previously analyzed. This study examined trends from 1991 to the present in federal and state criminal and civil actions against pharmaceutical companies in order to address these questions.

Analysis

The purpose of this study was to compile a comprehensive database of all major criminal and civil settlements between federal and state governments and pharmaceutical companies. Press releases from both federal and state governments, in addition to existing online databases, were used to identify all settlements of at least $1 million during the past 20 years.

Main Findings

Of the 165 settlements comprising $19.8 billion in penalties during this 20-year interval, 73 percent of the settlements (121) and 75 percent of the penalties ($14.8 billion) have occurred in just the past five years (2006-2010).

Four companies (GlaxoSmithKline, Pfizer, Eli Lilly, and Schering-Plough) accounted for more than half (53 percent or $10.5 billion) of all financial penalties imposed over the past two decades. These leading violators were among the world’s largest pharmaceutical companies.

While the defense industry used to be the biggest defrauder of the federal  government under the False Claims Act (FCA), a law enacted in 1863 to prevent defense contractor fraud, the pharmaceutical industry has greatly overtaken the defense industry in recent years. The pharmaceutical industry now tops not only the defense industry, but all other industries in the total amount of fraud payments for actions against the federal government under the False Claims Act.

The practice of illegal off-label promotion of pharmaceuticals has been responsible for the largest amount of financial penalties levied by the federal government over the past 20 years. This practice can be prosecuted as a criminal offense because of the potential for serious adverse health effects in patients from such activities.

Deliberately overcharging state health programs, mainly Medicaid fraud, has been the most common violation against state governments and is responsible for the largest amount of financial penalties levied by these governments. This type of violation is also the main factor in the considerable increase in state settlements with pharmaceutical companies over time.

Former pharmaceutical company employees and other “whistleblowers " have been instrumental in bringing to light the most egregious violations and have been responsible for initiating the largest number of federal settlements over the past 10 years. From 1991 through 2000, qui tam (whistleblower) cases made up only 9 percent of payouts to the government, but from 2001 through 2010, they comprised 67 percent of total payouts.

Conclusion

Over the past two decades, especially during the past 10 years, there has been a marked increase in both the number of government settlements with pharmaceutical companies and the size of the accompanying financial penalties.  The reasons for these increases are likely related to a combination of increased violations by companies and increased enforcement on the part of federal and state governments.  The danger to public safety and the loss of state and federal dollars that comes with these violations require a more robust response than the government’s current practices. Given the relatively small size of current financial penalties when compared to the perpetrating companies’ profits, both increased financial penalties and appropriate criminal prosecution of company leadership may provide a more effective deterrent to unlawful behavior by the pharmaceutical industry.

Worst Offenders and Largest Settlements

Individual Companies: Total Penalties, 1991-2010

There are 20 pharmaceutical companies that paid a total of at least $100 million each in financial penalties over the past 20 years. The four worst offenders, with at least $1 billion in penalties each, were GlaxoSmithKline, Pfizer, Eli Lilly, and Schering-Plough. Together they accounted for more than half (53percent) of all financial penalties paid out by pharmaceutical companies.

Twenty Largest Settlements, 1991-2010

The 20 largest settlements over the past two decades follow. In the largest settlement of the past 20 years, GlaxoSmithKline agreed to pay the federal government $3.4 billion in 2006 for failing to pay required taxes over a 17-year period.

The second and third largest settlements included the two largest criminal fines ever levied by the federal government against any company. In January 2009, Eli Lilly was forced to pay $515 million (the largest criminal fine ever received by a corporation at that time) and Pfizer, later that year, was fined$1.2 billion (the largest criminal fine ever imposed in the U.S.). Both companies were fined for illegal off-label promotion.

The majority (14) of the 20 largest settlements have occurred within the past five years (2006-2010), consistent with the dramatic increase in pharmaceutical industry financial penalties in recent years.  Of note, almost all cases (16 of 20) involved violations of the federal FCA, at least in part. Multiple blockbuster drugs (i.e., those with sales exceeding $1 billion per year), such as Neurontin (gabapentin), were involved in these settlements. For example, in the Pfizer case of 2004, the company was charged with illegal off-label promotion of Neurontin, a drug which in 2002 generated 94 percent of its $2.27-billion revenue from off-label use.

Table 2. Pharmaceutical Company Penalties: Worst Offenders

Company - Fine in millions of dollars - Percent of Total

GlaxoSmithKline                                     4501              22.7

Pfizer                                                            2935             14.8

Eli Lilly                                                        1712               8.6

Schering-Plough                                      1339               6.8

Bristol-Myers Squibb                             890                4.5

AstraZeneca                                               883                4.5

TAP Pharmaceutical Products            875                4.4

Merck                                                           806                4.1

Serono                                                          704                3.6

Purdue                                                         620                3.1

Allergan                                                      600                3.0

Novartis                                                       524                2.6

Cephalon                                                     425                 2.1

Johnson & Johnson                                353                 1.8

Forest Laboratories                                313                 1.6

Sanofi-aventis                                           310                 1.6

Bayer                                                            301                 1.5

Mylan                                                           267                 1.3

Teva                                                              181                 0.9

King Pharmaceuticals                          167                 0.8

Other                                                           595                 3.0

*Parent company names are current names without corporate (e.g. inc. or plc) designations. If company is non-existent now, name at time of most recent settlement was used.**Data for 2010 include only the first 10 months of the calendar year (through Nov. 1, 2010)***Percent of $19.813 billion in overall penalties. Percents do not add up to 100% as some cases were excluded due to inability to determine individual company share in settlement.

.