Curbing Drug-Company Abuses: Are Fines Enough?

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Anglo-Swedish pharmaceutical company AstraZeneca's premises in Macclesfield, northwest England

In late April, when the Justice Department announced its deal with AstraZeneca for the pharmaceutical company to pay a $520 million fine, as a result of the off-label marketing of its blockbuster antipsychotic drug Seroquel, Justice officials called it a "historic settlement." Attorney General Eric Holder, Health and Human Services Secretary Kathleen Sebelius and the head of the Food and Drug Administration held a press conference, trumpeting it as part of the Administration's "top priority" fight against health care fraud. It was the largest ever civil-only fine imposed by the U.S. government for an off-label marketing offense — the promotion of the drug for uses not approved because it has not been shown safe, necessary and effective.

Seroquel had FDA approval for use in short-term treatment of schizophrenia and acute bipolar 1, but according to Justice's complaint the company aggressively marketed the drug "as a long-term cure-all for a broad spectrum of psychiatric maladies, including ... aggression and agitation in children" even though clinical studies have sometimes shown "serious and debilitating side effects," particularly among the elderly and children. Seroquel is typically prescribed by psychiatrists, but was being marketed to general medical practitioners, including staff at nursing homes, veterans hospitals and prisons, and to neighborhood pediatricians, making patients "guinea pigs in an unsupervised drug test," according to a prosecutor.

The company denied the allegations but agreed to settle to "avoid the delay, uncertainty, inconvenience, and expense of protracted litigation." That kind of outcome is not uncommon. A conviction in court can be crippling to companies. The government too has an interest in avoiding expensive court fights, particularly if it feels it can gain future compliance through fines and corporate integrity agreements [CIAs] that allow it to guide and monitor companies' compliance efforts.

But critics are starting to question these settlements, pointing out that even such large fines have yet to make a serious dent in recurring marketing abuses. AstraZeneca's fine represented just 16.5% of revenue earned from Seroquel during the years its off-label marketing was ongoing — $8.6 billion in the U.S. between 2001 and 2006. Just how much of this was due to improper marketing is unclear, but considering the limited primary market and the widespread use of the drug, it was bound to have been significant.

Since companies can roll the costs of such fines into future drug prices, the penalties become just another cost of doing business. That means Americans get whammied twice. The first involves hundreds of millions of dollars in unnecessary reimbursements paid out by Medicare and Medicaid for drugs that were surreptitiously being promoted for unapproved uses. "Health care fraud is not only illegal, it drives up the cost of medical care for all of us," noted Tony West, who directs Justice's civil division.

What's more, critics claim, the corporate integrity agreements that are part of many of these settlements have been too loose to curb future abuses. Indeed, AstraZeneca was already operating under such an agreement, dating back to 2003 when the firm pleaded guilty to criminal and civil charges related to marketing of Zoladex, its prostate-cancer treatment. It paid a $355 million fine for fraud that took place over 12 years.

"You literally have a situation I think where the government pretends to go after these guys, the companies pretend to follow the law, but it's just a game for the consumption of the masses so people will think that the wheels of justice are actually moving," says Peter Rost, a former senior Pfizer marketing executive turned industry gadfly.

If the government were more serious, Rost contends, it would double the funding for prosecutions so that Justice could go after more than a fraction of the cases and bring more companies to trial. "I think until that happens this game will go on," says Rost. "It's obviously great for drug companies, its great for the lawyers, it's great for the Justice Department to bring in a token scalp every now and then, so everybody involved wins, and that is why it continues."

But going to trial carries high risk for both companies and the government, so both have incentives to settle. "The government jumps through hoops to avoid [having to enforce] the law, which would require the company to be actually be excluded from any federal health care programs [if there is a conviction]," explains Michael Mustokoff, an attorney who represented the salesman turned whistleblower who first brought AstraZeneca's abuses to the government's attention.

Such exclusion is a virtual death sentence for drug firms, which derive an estimated 30% to 40% of their sales from the government. "As much as the government wants the [settlement] money from these companies, it does not want to put them out of business," says Mustokoff.

The government is beginning to share the critics' view. "These are legitimate concerns," concedes Lewis Morris, chief counsel for the Department of Health and Human Services' unusually powerful Office of the Inspector General, which is a key player in the search for ways to combat recidivism among pharmaceutical companies. He says the government is stepping up its enforcement and beginning to flex its considerable regulatory authority more robustly. This includes plans to target responsible executives — not just companies — by toughening the CIAs to require management and a board committee to certify company compliance.