A common synonym for the crime of extortion is “shakedown,” and it is a crime under both state and federal law. It is a crime, that is, unless it is the government doing the shaking down. There is perhaps no more graphic illustration of the manner in which the government employs the awesome and far-reaching power of federal law to force corporations into massive monetary settlements, than the explosion in the number of cases brought against pharmaceutical companies in recent years.
Fines paid by pharmaceutical companies to the federal government to settle charges brought against them, has skyrocketed to $4.41 billion (from just $10 million in 1991). Even more revealing is the fact that of the 165 pharmaceutical settlements with the federal government in the past two decades, nearly three-fourths occurred in the past five years. A settlement that might have resulted from an investigation in the 1990s would have averaged $37 million; today the average settlement is $130 million. This is a cash cow that Uncle Sam knows how to milk.
This astronomical – and accelerating — increase in fines has taken place even though there has been no real change in the nature of the alleged infractions committed by the drug companies. Moreover, the basis for securing such huge fines rarely reflect violations of serious federal criminal laws; but rather regulatory discrepancies or failure to meet the intricate and complex “off-label” edicts which the companies are forced to follow. In just the past five years as well, so-called “unlawful promotion” of rules so complex even industry lawyers have a difficult time figuring them out, accounted for more than half of all violations charged to pharmaceutical companies.
The financial risk to the companies is huge, as is the corresponding windfall to the government. Moreover, company “whistleblowers” can become multi-millionaires overnight if their snitching results in a financial payout by the company to the government. And, holding off “blowing the whistle” until substantial sales of a drug has occurred, so as to increase penalties and “rewards,” has the perverse effect of prolonging the alleged “bad” behavior. Unfortunately, last year’s new omnibus health care law only increases the opportunities and incentives for anti-pharmaceutical whistleblowers.
A primary stick employed by the feds to pressure pharmaceutical companies to settle such cases, is the threat of “debarment.” And it is a Big Stick indeed. Placing a pharmaceutical company on the federal “debarment list” amounts to a corporate death sentence, because the company is then ineligible to participate in government medical programs, including Medicare and Medicaid. Without access to such programs, many drug companies would be unable to stay afloat; and the government knows this.
Whether one likes it or not, with the growth of federal health programs in recent decades, state and federal governments represent the largest customers for the majority of pharmaceutical manufacturers. According to the Kaiser Family Foundation, in 2008 nearly 40% of all spending by Americans on prescription drugs came from public payers, including the big boys on the block – Medicare and Medicaid.
Put another way, and looking at just a single major pharmaceutical company – in 2008, Pfizer brought in $19 billion in revenue from gross U.S. sales, and using Kaiser’s 37% figure, the company would be dependent on government contracts for approximately $7 billion. No company, no matter how large or in what industry, could afford to lose $7 billion in sales. The threat of being blacklisted by the government for failure to cave in to settlement pressure is obviously intense.
No one would dispute that pharmaceutical manufacturers must be held to high standards, or that true fraud should be ferreted out and prosecuted aggressively. However, the manner in which the government has chosen to target drug companies and pressure them to cough up huge sums of money in a constant game of regulatory “gotcha,” serves neither the companies nor those who rely on their products well.
-by Bob Barr, The Barr Code