Big Pharma Companies Face Hefty Penalties
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Collectively, drug companies have paid $6.6 billion in penalties in 2012 (through July) to settle Medicare, Medicaid, and other taxpayer subsidized programs, according to a new report published by national consumer watchdog group, Public Citizen. And over the last two decades, state and federal government prosecutors collected over $30 billion from pharmaceutical companies for illegal marketing and alleged fraud.
The report, titled Pharmaceutical Industry Criminal and Civil Penalties: An Update, was released on September 27, 2012 by Public Citizen, and is a continuation of their December 2010 landmark report that provided documentation of major financial settlements between pharmaceutical companies and state and federal governments since 1991.
GlaxoSmithKline (NYSE: GSK) was the worst offender, paying out approximately $7.56 billion since 1991. But Pfizer (NYSE: PFE) and Johnson & Johnson weren't too far behind, paying out $2.96 billion and $2.33 billion, respectively. Merck (NYSE: MRK) and Abbott Laboratories (NYSE: ABT) round out the top five, paying out $1.86 billion and $1.82 billion, respectively in financial penalties from 1991 to July 18, 2012.
Zocor, Vioxx, and Pepcid were the drugs involved in Merck's $650 million pay out for overcharging government programs and kickbacks though 2010, while Allergen (NYSE: AGN) had unlawful promotion violations for Botox for the tune of $600 million paid out from 1991 to 2010.
Penalties assessed to drug companies were for a wide range of violations categorized by Public Citizen as these nine areas:
- Overcharging government health care programs
- Financial violations
- Illegal distribution
- Environmental violations
- Unlawful promotion
- Concealment of study findings
- Monopoly actions
- Poor drug manufacturing
According to the report, overcharging government health care programs, such as Medicaid, was the most common assertion, while the most costly allegation was unauthorized drug promotion (off-label marketing).
Pharmaceutical companies are only allowed to market drugs for uses that the Food and Drug Administration approved. But alleged cases off-label marketing and otherwise promoting drugs for non-FDA approved uses are among the reasons that has prompted state's to pursue these cases in hopes of recovering taxpayer dollars in some cases in multimillion-dollar settlements.
An interesting point to note is that the $30 billion paid out in penalties to state and federal governments by Big Pharma companies since 1991 represents just a fraction of the two-thirds of profits realized by the top 10 largest pharmaceutical companies in just one year (2010), which Public Citizen points out.
"It should come as no surprise that states facing Medicaid budget shortfalls are finally deciding to root out fraud that has likely cost their taxpayers billions of dollars over the years," said Dr. Sammy Almashat, a Public Citizen researcher. “What this new report unequivocally shows is that those states that have chosen to hold the pharmaceutical industry accountable have largely seen their enforcement efforts pay for themselves,” Almashat commented.
The overall trend as depicted in the report is that annual pharmaceutical company settlements, as a whole and with both state and federal governments, has shown a significant increase over the past two decades, and particularly over the last five years.
In what is hoped to be an emerging trend -- to discourage further fraud, repress unlawful behavior, help thwart the danger to public safety, and to minimize the loss of state and federal monies as a result of these violations -- the consumer advocacy group is calling for both more criminal prosecution of key company executives and employees, tougher legislation, and more vigorous enforcement.
Summertime2 has no positions in the stocks mentioned above. The Motley Fool owns shares of GlaxoSmithKline and Johnson & Johnson. Motley Fool newsletter services recommend GlaxoSmithKline and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.