Is Uncle Sam shaking down drug companies?

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

71 comments Add your comment

the watch dog

March 14th, 2011
1:32 pm

Lewis Morris, counsel for the FDA cites his agencies 20 yr. debarment of Marc Hermelin, former chairman of the board of KV Pharaceutical in St. Louis. What I read is that the federal agencies are going after individuals rather than companies. Pharmaceutical companies pay hefty fines for off-labeling drugs.This way the compannies stay in business and are able to market their hot selling drugs, rather than prohiting them from selling to public agencies like Medicaid-Medicare.

All of the above being said, where the FDA should concentrate is on the way these companies market their drugs, prime time like they were selling a new flavor of jelly beans. I really dislike the pushy way they market everything as if it were the new cure for the world, it is disgraceful.

MC

March 14th, 2011
2:11 pm

But look at the numbers from 1990 to the present Ezekiel. Who has the most by far? I do believe the dems have gotten somewhere in the vicinity of 36% since 1990. What’s your point Ezekiel? Einstein you’re not.

Bobby Jenkins.

March 14th, 2011
2:13 pm

You keep exposing yourself Ezekiel. You really aren’t very bright.

GTmath

March 14th, 2011
2:15 pm

Ezekiel apparently doesn’t know that 64% is greater than 36% Bobby. He’s dumber than a box of rocks.

Sam Shumaker

March 14th, 2011
2:31 pm

Maybe Ezekiel can answer a very simple question in spite of his low level intellect. Ezekiel, have the republicans not historically gotten the lions share of these donations? Yes or no Ezekiel? There is no cute comeback or dodge to this question. You asked for facts and facts came back at you. Now you seem to not want to believe your lying eyes. Or are you just too challenged to be able to understand those facts? Yes or no Ezekiel?

Azazel

March 14th, 2011
2:32 pm

There is a larger political economy — not just who gets campaign contributions. Our whole concept of health and healthcare is from a disease model; where,diagnosis and treatment performed on individuals for individual maladies is the primary focus of attention. There is nothing wrong with diagnosing and treating disease, illness and injury. However, how is it that tis disease model is shifted to a wellness model? Such a shift is difficult — if it is in the public’s best interest to have a healthy society to reduce the costs of healthcare by minimizing its need, then what policies should be enacted to assure healthy communities and people?

Dawg fan

March 14th, 2011
2:37 pm

MC I’m guessin you the Eistein since the dems spending is about the same now as the publicans. Just took them a while to ketch up I guess. you an yer GTmath boy can snuggle up and sipher it out.

Sam Shumaker

March 14th, 2011
2:41 pm

It’s already been ciphered out Dawgie doo. You and your little cretin Ezekiel are just aren’t capable of figuring that out.

Ezekiel

March 14th, 2011
2:43 pm

Sam …Yes or no Ezekiel? There is no cute comeback or dodge to this question.

Sam…abosutley. Ask me if I care a flying fornication. Hell no. The fact of the matter is that the elected leaders lack the stones to take a positions that lead our country in the right direction that is not dictated by special interests, lobbyists or unions. I hate it. They vote their pocket book…dem or repub. Who gives a crap what the party is… that is the underbelly of our system.

Doug Edwards

March 14th, 2011
2:43 pm

It’s always pretty funny when the Ezekiels and Dawg fans of the world try to defend the indefensible.

Doug Edwards

March 14th, 2011
2:45 pm

So Ezekiel just what is the right direction? Details please. We’re all waiting for you to hit us with all that genius you profess to have.

Ezekiel

March 14th, 2011
2:56 pm

Dougie boy…why don’t we start with a balanced budget…spending what we bring in not adding $1.3 trillion to the debt annually. Maybe you borrow and spend more than you earn at Burger King and that is a concept that you can’t comprehend

Mike Elzey

March 14th, 2011
2:57 pm

I have never read an article from the Atlanta Journal-Constitution before. I never will read an article from the Atlanta Journal-Constitution again.

Doug Edwards

March 14th, 2011
2:58 pm

So what do you recommend we do to balance the budget Ezekiel? You’re not exactly blowing anybody away in here with your tea party talking points.

Yudontsay

March 14th, 2011
3:02 pm

So I take it you have huge problems with the guy that started down this road to ruin, GWB, and his boy Cheney Ezekiel?

Barack

March 14th, 2011
3:08 pm

Carefull all…the annnointed one is in the process of organizing a community event that will solve all our economic problems and bring about world peace and prosperity. Kumbya

Paulie

March 14th, 2011
3:08 pm

Way to go Ezekiel. Can’t dazzle em with brilliance so you baffle them with bs. Great strategy.

Jekyll Isle

March 15th, 2011
12:19 pm

The government is only shaking down companies that are in direct competition to firms they have already chosen.

Just take a look at the pregnancy drug that shout up from $30 a shot to $1,500 a shot. The government cleared the path for Pfizer and now they are they company that provides the drug.

We are going to get hammered with health care costs, especially drugs in the very near future

Jekyll Isle

March 15th, 2011
12:24 pm

Are knuckleheads really backing Obama Care?

These posts are brilliant, our president passed a law that forces those who don’t have health coverage to buy said insurance. And guess who they have to buy it off of? PRIVATE INSURANCE COMPANIES.

He just passed legislation allowing insurance companies to charge people more and more each year and if they don’t buy they get TAXED

And you morons are supporting this – I guess the Tea Party is crazy, All they want is less government in their lives and lower taxes.

You have to be crazy to want that – I hope each one of nut bags gets exactly what you ask for

Rand Eshouse

March 15th, 2011
12:31 pm

Interesting post! I wonder if this will be published on Twenty-First Tycoon. http://www.21Tycoon.com

Lee

March 15th, 2011
6:27 pm

And then we have the greatest marketing line of all time:

“Call your doctor if you have an erection lasting more than four hours…”