After a decade in which drug makers regularly paid huge fines for various fraudulent practices, there was a noticeable drop over the past two years, according to a new analysis by Public Citizen, the consumer advocacy group.
Pharmaceutical companies paid approximately $2.8 billion to settle federal and state civil and criminal charges in 2014 and 2015, compared with $9.9 billion during 2012 and 2013. The most recent payments also amounted to the lowest two-year total since 2004 and 2005.
The report compiled fines and settlements between drug makers and federal and state governments from 1991 through 2015, which totaled $35.7 billion. Of the 373 settlements during that time, 140 were federal settlements totaling $31.9 billion in fines, and 233 were state settlements totaling $3.8 billion in fines.
Among the worst offenders in recent years were Johnson & Johnson, Pfizer, Novartis, and GlaxoSmithKline, although the report noted that nearly every large drug maker has paid fines to resolve some kind of infraction over the past two decades. Many have reached multiple settlements, as well.
There were no explanations given, though, for the recent decline in penalties, but the consumer group speculated that the US Department of Justice — which has regularly pursued lawbreaking by the pharmaceutical industry — may have turned its attention to pursuing different sorts of violations.
Sammy Almashat, the lead author of the report, noted that drug makers recently paid fewer total fines for off-label promotion. This activity involves marketing a medicine for a use not approved by the Food and Drug Administration, although doctors are free to prescribe any medicine that they see fit.
Typically, though, Public Citizen found that off-label promotion generated the largest penalties over the years, accounting for 25 percent of all violations. But during 2014 and 2015, fines amounted to just $263 million compared with $2.8 billion during 2012 and 2013, an almost eleven-fold decrease.
“We don’t really know why there was a drop,” he said. The consumer group, however, suggested that stronger enforcement is needed so that government health care programs are not defrauded by illegal promotional activities. A Justice Department spokeswoman declined to comment.
Public Citizen also posited that the recent decrease in penalties may reflect shifts in marketing strategies by drug makers. As a result of the numerous settlements, nearly every large drug maker has been required to beef up compliance procedures. At the same time, the federal government now runs a database that tracks payments made by these companies to doctors.
Nonetheless, the consumer group is skeptical that marketing practices have substantively changed. Almashat argued that despite the large fines that have been paid over the years, companies did not appear to be deterred, because they were proven to be repeat offenders. Moreover, the government did not prosecute executives from the leading drug makers.
“The penalties were far smaller than the profits made on the drugs, sometimes not even as large as the sales generated by off-label uses possibly brought about by the fraud,” he said. “So I’d be surprised if companies are complying based on punishments that were given before.”
Another activity that led to penalties: pay-to-delay deals in which a brand-name drug maker reaches a patent settlement with a generic rival to delay the launch of a copycat medicine. Other infractions that made the list were kickbacks to doctors; overcharging government health care programs; poor manufacturing practices; environment violations; and concealing clinical trial data.
A spokesman for the Pharmaceutical Research and Manufacturers of America, the industry trade group, sent us this reaction: “We are disappointed at the report’s misleading conclusions. Biopharmaceutical companies are committed to legal and ethical conduct that serves the best interests of patients. The report makes scant mention of the tens of millions of dollars companies spend annually to develop and maintain state-of-the-art legal compliance programs.
“Among its many methodological flaws, the report aggregates all settlements involving the pharmaceutical industry, with little regard as to whether the companies actually broke the law. Civil settlements rarely resolve the question of guilt. Yet the report glosses over its own finding that 88 percentof the settlements reported were civil, not criminal.
“Conversations about how to direct health care enforcement to promote ethical corporate conduct, patient safety, innovation, and security of the public [treasury] are important and necessary. Those conversations are ill-served by slapdash conclusions based on faulty reasoning shown in this report.”
Meanwhile, here are some other nuggets from the report: The average size of federal settlements declined from $395 million per settlement — $8.7 billion for 22 settlements — in 2012 and 2013 to $126 million per settlement — $2.4 billion for 19 settlements — during 2014 and 2015.
Almost all of the decrease in the total number of settlements in 2014 and 2015 was due to a drop in the number of single-state settlements involving overcharging government health programs. In 2012 and 2013, there were a combined 73 settlements, but just five in 2014 and 2015, a 93 percent drop.
Whistleblower cases, brought mostly under the False Claims Act, were responsible, in part, for 58 percent of the 140 federal settlements, and 71 percent of the nearly $32 billion in federal penalties, from 1991 through 2015. But these accounted for 7 percent of 233 state settlements and 21 percent of the $3.8 billion in state financial penalties.
(This story was updated to note that the Justice Department later declined to comment).