Fewer pharma settlements doesn't mean the industry has reformed

The pharmaceutical industry is paying less in financial penalties than ever before. A lot less.

In the last two years, the government has recovered $2.4 billion in federal financial penalties from pharmaceutical companies, according to a report released by Public Citizen. That's a 72 percent decline from 2012-2013, when penalties reached $8.7 billion. As with previous years, the majority are still tied to overcharging government programs, kickbacks and off-label promotion of drugs.

Federal settlements dropped slightly, from 22 to 19, but according to the report, the average settlement was less than one third as much during the recent two-year period. Single-state settlements, on the other hand, dropped sharply, from 95 between 2012-2013 to just 20 in 2014-2015. Last year, there were just seven state settlements.  

There are two ways to look at these statistics: One possible explanation for the sharp decline in settlements is that the pharmaceutical industry had a moment of enlightenment and decided that all this corruption is simply no way to do business. After years of nonchalantly paying multi-billion dollar fines the way you might pay off a parking ticket, the industry suddenly cleaned up its act.

Doesn't that just stoke the embers of your cold, cynical heart?

Dr. Sammy Almashat, lead author of the report, isn't buying it:

"We don't yet know why there were fewer and smaller settlements in the 2014 to 2015 period," he said in a statement. "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."

Here's the other, more probable explanation: The government is backing down, replacing the big fish (that require a big investment) with something smaller and more manageable.

Government officials began dropping hints last year that enforcement efforts against big pharma were tapering off. At the Third Annual CBI Compliance Monitoring Conference in Philadelphia, a panel of four Justice Department representatives told Steve Vincze, a managing partner at the consulting firm Polaris, that "the era of big pharma mega-settlements was over." Instead, the department was targeting smaller life science companies with weaker compliance programs.

A month prior, Zane David Memeger, the U.S. Attorney in Philadelphia, told Law360 that big pharma cases have "come down over the years" thanks to corporate integrity agreements that emphasize strong compliance programs. Of course, he offered one small caveat.

"But at the end of the day, I suspect that at some point, entities may push the envelope again," he told Law360.

That sounds more like it. After all, this is an industry that practically perfected the craft of "pushing the envelope" when it came to speaking fees, dinners and other kickback payments disguised as anything from market share rebates to grants.

It's likely that that the compliance programs of pharmaceutical giants such as Pfizer, GlaxoSmithKline and Novartis look better than they did several years ago (practice makes perfect, I suppose). The government has been pushing compliance programs as of late, and many of the most recent settlements (like a $2.2 billion settlement with Johnson and Johnson) include corporate integrity agreements that outline enhanced compliance programs.

But if the past is any indication, those corporate integrity agreements are worth less than the paper they're printed on. For example, in 2004, Pfizer paid $430 million to settle claims it paid kickbacks in the form of consulting fees to promote the drug Neurontin. As part of the settlement, the company agreed to institute a comprehensive compliance program. Five years later, Pfizer paid $2.3 billion to resolve allegations that it offered kickbacks to promote four different drugs.  

Pfizer has entered into 11 different federal settlements since 1991, according to Public Citizen. Other repeat offenders like Merck, GlaxcoSmithKline and Novartis have entered into 25 federal settlements in the last 25 years totaling more than $10.2 billion.

For years, fraud settlements have been the cost of doing business for the pharmaceutical industry; a small investment compared to the large returns. If you want to believe big pharma has changed its ways, be my guest. My guess is big pharma is tightening up its compliance procedures on paper, while finding new, innovative ways to push the envelope. - Evan (@HealthPayer)

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