• Pharma fraud

    Another day, another billion dollar pharma company fraud settlement with felony guilty pleas. In my NEJM Perspective (now online), I argue that the industry is treating these fines like a cost of doing business, without sufficient deterrent value. Options include:

    • Criminal prosecution of individuals in addition to the companies;
    • Enhanced whistleblower protections;
    • Recouping a larger percentage of the ill-gotten gains; and
    • Regulating the industry on a level playing field instead of layers of “corporate integrity agreements”

    The latest settlement with GSK (J&J should announce soon) promises to recoup fraud-related bonuses from future executives and to stop paying drug reps based on off-label sales effectiveness.  GSK also pled guilty to hiding important safety data on Avandia.


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    • As Dean Baker frequently points out, fraud is a natural consequence of the extreme above-market profits earned by pharma as a result of patent monopolies that allow them to sell drugs at way above the cost of production. Without patent protection, the incentive to cheat would be much lower.

      • Here’s a fifth item for the list in the post that could make the companies suffer: temporary suspension or permanent cancellation of the company’s patents. In other words, if you want to get the protections of the government-run and government-enforced patent system, you need to play by the all of the rules.

    • Two questions/thoughts:

      (1) In response to the other comment, can we show what the extreme above-market profits are in pharma? What are the typical margins? And would any company or industry on average be “allowed” at least in the short run to earn these above market profits? Or is this Lake Woebegon (sp?) again? Someone has to be above average, and if not pharma can we articulate for whom it would be appropriate? Further, it would be really interesting to see how persistent the above-market pharma profits are. The real sign of monopoly power would be that these would last. And it is always a good question to ask what the source of the monopoly power is in the first place. Of course the FDA regulations on efficacy (see point below) could reasonably be examined for how much of an impact they have.

      (2) In regard to paying drug reps for off-label sales effectiveness, this is of course in response to the efficacy rules of the FDA. The “problem” also goes away if those requirements are relaxed.

      • Compare the prices of drugs with patent protection and generics. Consider that cost of manufacturing (i.e., marginal cost) is about the same.

      • @ Wintercow20

        I am not sure what you mean by “relaxed”. In what way is the FDA setting the requirements for proving efficacy too high

    • An even better example is hospitals overbilling Medicare. Usually they get caught 10 years after the fact and have to pay less than 1% of what they stole from taxpayers, then they get a blank slate to cheat the system again.

      A good example is Dallas Parkland. In 1998 they got busted for Medicare fraud that had occurred over the previous 10 years. They got over 35 million in revenues from that fraud, and when they finally got caught they only had to pay a paltry 1 million. They got busted again in 2008 for a 150 million dollar fraud and only had to pay back 5 million.

      Hospitals have a license to steal money from taxpayers. The WORST case scenario is that you get caught 10 years later and only have to pay back 5% of what you stole. That is an EXCELLENT business model for fraud.