Regulatory Focus™ > News Articles > Study: Regulatory Noncompliance Plays Big Role in Record-Setting Fines

Study: Regulatory Noncompliance Plays Big Role in Record-Setting Fines

Posted 28 September 2012 | By Alexander Gaffney, RAC 

Regulatory compliance woes have contributed to record-setting fines paid by pharmaceutical companies since 1991-more than $30 billion in total -- claims a new report published by the health advocacy group Public Citizen.

The report, "Pharmaceutical industry Criminal and Civil Penalties: an Update," follows an earlier 2012 report by the same group in which it found that nearly $20 billion had been recovered by federal officials from pharmaceutical companies since 1991, with approximately $16 billion having been since just 2005.

The report notes that the pace of recovery has accelerated, with the first six months of 2012 seeing a whopping $6.6 billion in fines-a record-setting amount that includes a record-setting fine from British manufacturer GlaxoSmithKline (GSK), which agreed to pay $3 billion in July 2012 to settle charges it improperly marketed its anti-diabetes drug Avandia. Other fines include a $1.5 billion fine levied against Abbott for off-label marketing of its anti-seizure drug Depakote and a $1.2 billion fine again Johnson and Johnson, now on appeal and expected to reach more than $2 billion.

Many of the products earning manufacturers fines during 2012 were marketed in the mid-to-late 2000s, but the report explains their root causes vary widely. The most common cause of legal action against companies: overcharging for the cost of drugs, which are regulated through specific formulas when sold to and through federal health programs.

The second-largest cause of fines, however, was related to regulatory. Companies which marketed products using off-label indications comprised seven of the top 10 spots for the first seven months of 2012 and 14 of the top 20 settlements ever reached. Since 1991, companies have been found guilty of 130 violations related to overcharging government programs, while unlawful promotion accounted for 64. Other regulatory issues, such as concealing study findings (10), poor manufacturing practices (7) and illegal distribution (2) were also highlighted.

The findings could place new pressure on legislators to take action, particularly in light of two points brought up by the study.

The first: The pharmaceutical industry is, bar none, the largest defrauder of the US government. Even the defense industry, often maligned for contracting waste and abuse, has only outpaced the pharmaceutical industry once since 2006-the defense industry's worst year on record and the pharmaceutical industry's fourth best since 2002.

The second: Fines don't appear to be working. If anything, the report explains, the pace of malfeasance appears to be accelerating as companies find that the cost of paying fines is exceeded by the revenue such activities take in.

"On a federal level, financial penalties still continue to pale in comparison to company profits and a parent company is only rarely excluded from participation in Medicare and Medicaid for the illegal activities, which endanger the public health and deplete already overstretched taxpayer-funded programs," the report notes.

Though the government has recently begun to take action against individuals in companies who may have direct responsibility for the activities-otherwise known as the Park Doctrine or Responsible Corporate Officer Doctrine-Public Citizen said these cases are rarely pursued, difficult to prosecute and rarely successful.

"Stronger legislation and more robust enforcement are needed on a federal and state level to deter future unlawful behavior," the study concludes.


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