Record payouts for drug industry fraud but profits trump penalties

Last November, when GlaxoSmithKline (GSK) first announced that it had reached a $3 billion settlement with the federal government to resolve allegations of fraud stretching back over a decade, the response on Wall Street was revealingly muted, with the company’s stock actually rising following the announcement. Les Funtleyder, health care strategist with the New York brokerage firm Miller Tabak, captured the sentiment on Wall Street succinctly in an interview with The New York Times: “This is a well-worn path for big pharma.”

Indeed, as a new Public Citizen report released last week shows, settlements like GSK’s have become so commonplace that investors have come to accept billion-dollar payouts for fraud as an “innate risk” of investing in the drug industry. The report documents that, since 1991, the industry has paid out more than $30 billion in 239 different settlements with the federal government and the states to resolve a wide range of fraud allegations.

While this may seem like a large sum, consider that $30 billion represents just over two-thirds of the profits of the top 10 drug companies in a single year (2010). The illegal activities alone likely generate much more in profits than are forked over in penalties years down the road. Also worth considering is the severity of the allegations that result in the payouts.

The companies have been accused of, or plead guilty to, such violations as overcharging state Medicaid programs for drugs, sometimes at 6,000 percent markups, and illegally marketing medications for unapproved, off-label uses for patients, even children and the mentally ill, whom the drugs will not benefit, and may actually harm.

Through these and other practices, Big Pharma has likely made off with tens of billions in taxpayer money at the very time that Medicare and Medicaid face ever-increasing budget shortfalls. The fraud also routinely puts patients’ lives in danger.

This year’s GSK settlement is a case in point. GSK pleaded guilty to the concealment of critical data from studies that showed that its blockbuster diabetes drug Avandia caused fatal heart attacks and heart failure – deadly side effects that led to an estimated 50,000 to 100,000 deaths or injuries in patients on the drug. For this offense, the company paid a paltry $243 million criminal fine to the feds, or a mere 2 percent of the drug’s $10.4 billion sales over the time during which the fraud occurred.

No GSK executive was criminally charged for this egregious behavior, as is unfortunately standard in such cases. In fact, only a handful of pharmaceutical executives have ever been successfully prosecuted, and only one has been sent to jail (for only 30 days) for overseeing this fraud.

This lack of accountability is at the heart of why the fraud continues unabated, but it should come as no surprise that the federal government has been unwilling to act more forcefully. While the drug industry is now the top defrauder of the federal government, it is also its biggest corporate lobbyist, with Democrats now rivaling Republicans in industry contributions.

Unless there is countervailing public pressure to hold the drug industry accountable for defrauding taxpayer-funded programs and putting patients’ lives in danger, the federal government, through these inconsequential settlements, will continue to send Big Pharma the implicit message that crime does pay.

Dr. Sammy Almashat, researcher, Public Citizen’s Health Research Group