By Annastasia Morairty, JHBL Staff Member
Fraud, misconduct, and illegal activity are well-known aspects of pharmaceutical companies’ business practices. Unlike other large industries, while business practices may be potentially unethical, but not illegal, those in the pharmaceutical industry routinely and flagrantly engage in illegal activity without facing any deterrent consequences. The Food and Drug Administration (FDA) and the False Claims Act (FCA) deem pharmaceutical companies criminally and civilly liable for engaging in conduct including, but not limited to, misbranding and mislabeling products, promoting products for off-label or non-FDA approved uses, misrepresenting or adulterating data and clinical trial results, and failing to disclose or adequately warn consumers of potential risks and side effects. Violations of these laws and regulations are so widespread and regular, that it is difficult to argue that they are not purposeful. For example, a recent landmark bribery case, Insys Therapeutics executives were found guilty of bribing doctors to prescribe a fentanyl-based opioid pain medication without medical necessity. This case marks the first time pharmaceutical executives have been sentenced to jail time for their knowing participation in unethical and illegal conduct.
A number of factors contribute to this pattern:
Inadequate Regulation and Enforcement
Though the FDA has seemingly far-reaching regulatory power, enforcing these regulations can be quite difficult. One of the major failings of the FDA’s enforcement power is the fact that they are simply outnumbered. Because the FDA is in charge of regulating both pre and postmarket stages of drug production and marketing, it is responsible for overseeing a vast amount of information and activity. As a result, pharmaceutical company compliance becomes essentially an honor system that relies on self-regulation and insider whistleblowers that expose misconduct. The FDA does not have the power to bring criminal charges against drug manufacturers or pharmaceutical executives, all claims must be “whistleblower” or qui tam suits in which an individual or group brings suit on behalf of the Federal Government, personal injury claims, or brought by the Department of Justice itself.
The other main difficulty the FDA faces in vetting and evaluating the statements and data presented by drug companies is that the FDA does not perform clinical trials itself. It relies on the data reported in New Drug Applications based on clinical trials conducted by the drug companies themselves.
Insufficient Financial Consequences
We are all likely familiar with the corporate concept of “the cost of doing business.” This refers to all expenses a company incurs in running its business, producing its goods, and/or performing its services. Each industry factors unique expenses into their costs of doing business but for the pharmaceutical industry, one factored expense exposes a disturbing industry practice: the cost of settling lawsuits resulting from corporate misconduct. While it is reasonable for pharmaceutical companies to anticipate litigation relating to personal injury claims, some of the most common types of pharmaceutical lawsuits involve illegal off-label marketing, research and data misrepresentation, and Medicare and Medicaid fraud. These lawsuits are so common that pharmaceutical companies routinely set up reserve or “liability” accounts to cover the costs of settling these suits. Further, the cost of settling these lawsuits is so insignificant when compared to the the profit made by the fraud or misconduct, that the financial incentives to break the law far outweigh any moral reasons to follow it. For example, Pfizer, when charged with illegally marketing Neurontin off-label, settled out of court for $430 million dollars. While this amount would bankrupt many companies, Pfizer’s stock remained unaffected. The profits gained from their marketing of Neurontin the year before the suit alone was $2.7 billion, with 90% of prescriptions being for off-label uses. Pfizer had entered into three separate corporate integrity agreements with the Department of Health and Human Services the year before this suit was filed. Pfizer paid almost three billion dollars in off-label penalties alone, however, this amounted to only about one percent of Pfizer’s revenue for the four-year period for which they were fined.
Lack of Individual Liability
Not only do companies avoid accountability through insurance and incidentals accounts, the individual corporate actors who orchestrate and perpetuate illegal business practices walk away without facing personal liability. There is a disturbing practice of pharmaceutical companies being subject to punitive civil punishment for criminal offenses. Under the FCA and Title 18 of the United States Code these actors are subject to prosecution, but these options are rarely exercised. The Government is reluctant to incur the costs of prosecuting individuals, and the often prohibitively high burden of proof prosecutors face in proving criminal liability allows guilty and complicit executives to avoid punishment. In many cases, executives are able to admit to criminal behavior and the DOJ pursues civil money penalties against their company in lieu of criminal penalties against the responsible individuals. Pharmaceutical settlements generate large amounts of money for the Government, and the costs of criminal litigation often outweigh the societal benefits of holding criminal executives accountable.
In order for pharmaceutical companies and the executives who perpetuate their criminal activity to change their illegal and deliberate business practices, both criminal and financial sanctions must raise to a prohibitive level. Disgorging companies of the profits gained through fraudulent marketing and manufacturing practices while holding individual actors criminally liable could greatly reduce the widespread corruption and misconduct in the pharmaceutical industry.
Sources
18 U.S.C. §§ 1961–1968
37 U.S.C. § 3729
Peter Gotzshe, Big Pharma often commits corporate crime, and this must be stopped, British Medical Journal 346 (Feb. 2013).
https://www.bmj.com/bmj/section-pdf/187741?path=/bmj/346/7894/Views_Reviews.full.pdf
Kristen Compton, Big Pharma and medical device manufacturers (Jan. 22, 2020). https://www.drugwatch.com/manufacturers/
Ayla Ellison, False Claims Act settlements top $750M in first half of 2019 (July 18, 2019). https://www.beckershospitalreview.com/legal-regulatory-issues/false-claims-act-settlements-top-750m-in-first-half-of-2019.html
David Evans, Pfizer Broke the law by promoting drugs for unapproved uses (Nov. 9, 2009). http://www.bloomberg.com/apps/news?pid=email_en&sid=a4yv1nyxCGoa.
Aaron s. Kesselheim et al., False Claims Act prosecution did not deter off-label drug use in the case of Neurontin (2011).
Gabrielle Emanuel, Opioid executive John Kapoor found guilty in landmark bribery case, (May 2, 2019). https://www.npr.org/2019/05/02/711346081/opioid-executive-john-kapoor-found-guilty-in-landmark-bribery-case
Marc A. Rodwin, Do we need stronger sanctions to ensure legal compliance by pharmaceutical firms? 70 Food and Drug Law Journal 443 (2015)
Annastasia is a second-year law student at Suffolk University concentrating on health and biomedical law. She is employed by Sheff Law Offices, P.C., a Boston personal injury firm, as a law clerk. As a JHBL staff member, she is writing a piece on freedom of speech applied to family planning clinics and abortion.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHBL or Suffolk University Law School.