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
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.
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.
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
). Both companies were fined for illegal off-label promotion. U.S.
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.