By a retired physician who worked several years in the medical communications and pharmaceutical industry who writes as Francois T
Is the federal government really ready to punish those responsible of corporate malfeasance in the pharmaceutical industry?
Push hard enough and you are bound to get a push back, even from a slow, at times dimwitted, sluggish, but mighty juggernaut like the federal government.
According to Fortune, this is the plight that could await executives at pharmaceutical companies. The Feds are, ahem, fed up, and ready to strike back.
The federal government is fed up with the amount of fraud, especially recurring fraud from the same companies, happening in the pharmaceutical industry. Therefore, regulators have decided that when it comes to punishments, it is time to get personal.
From now on, individual executives risk being ejected from their jobs — and perhaps even barred from the industry — for fraud their companies commit, even if they did not participate or even know about the crimes.
All that’s required for the government to flex this remarkably broad authority — embedded in the Responsible Corporate Officers Doctrine — is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.
The new approach, emerging from the unusually powerful Inspector General’s office in the Department of Health and Human Services, reflects frustration with corporate recidivism even in the face of ramped-up fines, penalties and disgorgements.
FT here: Corporate recidivism? If this sounds bad, it is, and then some. Scroll through this extensive series of cases to get an idea of the magnitude of the problem, as well as some rather juicy details.
One could reasonably ask why wouldn’t federal prosecutors sue and get a conviction of the corporation in court. Alas, there are rather thorny legal and practical problems involving a serial recidivist:
…when it came to prosecuting Pfizer for its fraudulent marketing, (of Bextra, Pfizer’s answer to Vioxx) the pharmaceutical giant had a trump card: Just as the giant banks on Wall Street were deemed too big to fail, Pfizer was considered too big to nail.
Why? Because any company convicted of a major health care fraud is automatically excluded from Medicare and Medicaid. Convicting Pfizer on Bextra would prevent the company from billing federal health programs for any of its products. It would be a corporate death sentence.
Prosecutors said that excluding Pfizer would most likely lead to Pfizer’s collapse, with collateral consequences: disrupting the flow of Pfizer products to Medicare and Medicaid recipients, causing the loss of jobs including those of Pfizer employees who were not involved in the fraud, and causing significant losses for Pfizer shareholders.
“We have to ask whether by excluding the company [from Medicare and Medicaid], are we harming our patients,” said Lewis Morris of the Department of Health and Human Services.
So, Pfizer and the feds cut a deal. Instead of charging Pfizer with a crime, prosecutors would charge a Pfizer subsidiary, Pharmacia & Upjohn Co. Inc.
Quite a conundrum, isn’t it? Convicting the corporation can be very disruptive to innocent third parties, most especially patients and innocent employees; yet, ever-increasing fines, penalties and disgorgements are ineffective to change behavior. However, the monetary penalty strategy has been the modus operandi of the feds for a long time. So, what could explain the change among the HHS honchos?
There were two likely catalysts at play here. First, the “in-your-face” behavior of pharmaceutical companies is getting beyond outrageous. As per the Fortune story:
In the government’s most recent major settlement — in which AstraZeneca agreed to pay $520 million — the fine represented 16.5% of the $8.6 billion income (between 2001-2006) from U.S. sales of Seroquel, a powerful anti-psychotic. AstraZeneca turned this narrowly approved drug into a cash cow by marketing it for much wider use, including by the elderly and children, even though they are particularly vulnerable to “serious and debilitating side effects.”
A personal story: a teenaged relative was put on Seroquel. The poor kid gained 50 pounds (!!) in 2 months, had trouble waking up during the morning, and couldn’t focus in class while mercilessly taunted by the other students. His distraught parents finally called me and I sent them straight to the pediatrician. He was pre-diabetic (at 15 y/o) with a disastrous lipid profile. Needless to say AZ brass were well aware of these kind of side effects, yet, they tailored their marketing to minimize, when not withholding entire studies that were unfavorable to their product.
This took place while AstraZeneca was operating under a corporate integrity agreement (CIA) with the Inspector General, imposed after a 2003 off-label marketing case.
To get a true measure of the chutzpah on display here, consider this; the OIG had an office within Astra-Zeneca headquarters where OIG employees were in charge of the monitoring compliance of the agreement. The people from AZ I interacted with at the time, were very aware of that and toed the line. No one wanted to be caught in the vise grip of the OIG people.
Yet, the higher-ups felt so far above the unwashed masses that they were busy calculating the business cost (to their shareholders, of course, not themselves) of violating the law once again.
Please note that the AZ case falls under the “suitable for all audiences” label. For those connoisseurs who truly appreciate the hard-core stuff, (fatalities included) take a look (deep bow of appreciation to Dr. Roy M. Poses at Healthcare Renewal blog) at this saga (several links at post) and its sequel. The short of it is that Boston Scientific and its subsidiary Guidant Corp. kept selling potentially defective implantable cardiac defibrillators (the type that is surgically placed in the thorax) despite being cognizant of the problems for several years. The way prosecutors handled the settlement is the sequel, and it gives moral depravity a bad name. Even though prosecutors specifically stated in the complaint that Guidant had knowingly sold potentially flawed defibrillators, the plea agreement only contained a guilty plea for two misdemeanor chargesregarding the completeness and accuracy of its filings with the Food and Drug Administration! Fortunately, the judge assigned to monitor the settlement refused to approve it.
The second likely catalyst is more fundamental in nature. If calls to honor, pride or moral rectitude fails, try shame. What the officials at the Health and Human Services would not do to a pharmaceutical executive, the SEC did in a recent case involving Sequenom Corp. A former senior executive, Elizabeth Dragon manipulated data to make a Down syndrome test sold by the company “appear more accurate than it was”. The SEC also accused her of lying to investors. A as result, she is barred from serving as an officer or director of a public company.
Can the contrast between the Sequenom and Boston Scientific cases be starker? A former senior vice president of research and development is excluded from the pharmaceutical industry (by the SEC, not HHS) for lying to investors about a diagnostic test, while no one at Boston Scientific or Guidant has received civil, let alone criminal charges for knowingly selling defective cardiac defibrillators that can (and did!) cost lives. Compromising wealth get harsher punishment than compromising health? How could the enforcers at HHS explain this one to the family of the victims (or their bosses) without utter embarrassment?
Between getting sick and tired of the rank insolence of the executives, the blatant inadequacy of their settlements to curb bad behavior (let’s not forget the Obama administration commitment to deter health care fraud — yes! they’re serious about that.), it is fair to venture that the feds have had enough:
“We are going to start to use that authority in the appropriate circumstances to get high level executives out of companies, so that the company has a better shot at changing its behavior, so that it does not become a recidivist,” explains Lewis Morris, chief counsel to the Inspector General.
“It’s our expectation that in the next several months you will begin to see the fruits of that new strategy,” he adds. His targets include anyone going on corporate retreats, from VP of sales up to and including CEOs.
It remains to be seen if said bureaucrats will have the cojones to follow through while resisting the pressure that is sure to come from some corners of Capitol Hill. Even more speculative is the thought that this “get tough” attitude could spread across the different regulating agencies of the federal government. It sure would be a welcome change that we could believe in.