Big Pharma settlements highlight the need for tougher enforcement, says US advocacy

Stronger enforcement is needed to deter pharmaceutical manufacturers from continuing to break the law and defraud federal and state health programs, according to a report from US consumer advocacy group Public Citizen released last week.

The report – an update to a previous (2012) study with additional data through 2015 – catalogues all major financial settlements and court judgments between pharmaceutical companies and federal and state governments from 1991 through 2015, which totaled $35.7 billion.

Of the 373 settlements over those 25 years, 140 were federal settlements totaling $31.9 billion, and 233 were state settlements totaling $3.8 billion. The UK’s GlaxoSmithKline (LSE: KSK) and US pharma giant Pfizer (NYSE: PFE) reached the most settlements and paid the most in financial penalties - $7.9 billion and $3.9 billion, respectively. From 1991 through 2015, 31 companies entered into repeat settlements with the federal government. The violation resulting in the most federal penalties was unlawful promotion, usually off-label marketing.

29 states and the District of Columbia reached at least one single-state settlement with a pharmaceutical company during the 25-year period studied. The most common violation was drug-pricing fraud against state Medicaid programs. Hawaii recovered the most money as a proportion of Medicaid drug expenditures; South Carolina recuperated the most money per enforcement dollar spent; Louisiana claimed the most single-state settlements; and Texas finalized by far the most whistleblower-initiated settlements.

Size and number of settlements decreased in 2014 and 2015

Another key finding is that both the number and size of settlements decreased significantly in 2014 and 2015. Just $2.4 billion in federal financial penalties were recovered in 2014-2015, less than one-third of the $8.7 billion in 2012-2013 and the lowest two-year total since 2004-2005. Moreover, there were just 20 state settlements in 2014-2015, the lowest two-year total since 2006-2007. This reflected a dramatic decrease in federal financial penalties for unlawful drug promotion and a similarly sharp decline in the number of single-state settlements stemming from overcharging government health programs.

The report explores several possible reasons for this drop in settlement activity. The possibilities include a decline in federal enforcement; a shift in the focus of federal prosecutions away from off-label marketing and toward other forms of illegal activity, as alluded to by US Department of Justice officials in 2012; changes in state Medicaid pharmaceutical reimbursement strategies; and shifts in industry marketing strategies.

“We don’t yet know why there were fewer and smaller settlements in the 2014 to 2015 period,” said Sammy Almashat, a researcher with Public Citizen’s Health Research Group and lead author of the report. “But we do know that, in addition to the rarity of executive accountability, previous penalties never have been large enough to deter the most common types of pharmaceutical fraud. So it would be surprising if the industry suddenly decided, of its own accord, to comply with laws it has routinely violated for decades,” he added.

The pharmaceutical industry’s $711 billion in global net profits from just one decade (2003-2012) dwarf the $35.7 billion in penalties recovered over the last quarter century. The largest settlement announced since Public Citizen’s last report – and the third-largest health fraud settlement in history – demonstrates the stark imbalance between the penalties for and the profits made on implicated products. In 2013, Johnson & Johnson (NYSE: JNJ) paid $2 billion after pleading guilty to off-label promotion of its antipsychotic Risperdal (risperidone) for use in elderly patients with dementia. Risperdal brought in $11.7 billion in sales for the company in just the first 12 years after its approval (1994-2005), nearly six times the total settlement amount.