Wednesday, April 28, 2010

Federal Settlements: The ACRE Perspective

A brief footnote to the previous post on AstraZeneca and Seroquel:

As I reported a little while back, I had the pleasure recently of listening to a major presentation (at Davidson College, NC) by our colleague at Harvard and ACRE, Dr. Thomas P. Stossel:

Dr. Stossel did such a nice job of summarizing the world view of the ACRE folks that I will take this opportunity to comment on one point that's relevant to the recent AstraZeneca case.

Dr. S. was fully aware that when he tries to present his rosy view of the great advances in human well-being produced by recent Pharma and biotech breakthroughs, his critics will trot out "anecdotal" evidence of industry wrongdoing. One such anecdote is the settlement agreed to by a major drug firm when charged by the Feds with criminal conduct. As I recall, Dr. S. even provided his own list on a slide of some two dozen of these recent settlements.

He then gave the Pharma spin on that list. First of all, he said, if you think about all the wonderful new drugs and all the lives that they have saved, etc. this list looks pretty puny.

Second, we have to realize that in these cases, the drug companies are basically powerless and the Feds hold all the cards. The penalty the Feds can exact is capital punishment--a drug company found guilty of a crime automatically loses all ability to do business with Federal programs such as Medicare, Medicaid, VA, etc. for a certain number of years. That would be the death knell for any drug firm. So companies accused of crimes by the Feds cannot take the risk of defending themselves in court; they have no choice but to settle. Therefore (implies Dr. S.) most of these charges are completely false and baseless, and the companies settle solely because they are forced into it. (And of course, in most cases, the company denies wrongdoing as part of the settlement.)

OK, so that is the ACRE take on the matter. My replies:
  • It is reassuring to know that the Feds do not find evidence of criminal wrongdoing in the marketing of every single drug that has recently come on the market. What I think the list proves, however long or short it is, is exactly the point that I have stressed ad nauseum in this blog--that we see here a recurring business strategy across the entire industry and not the actions of an occasional rogue firm.
  • If you look at what it takes to put together one of these legal actions against a drug company--usually an inside whistle blower plus some 5-6 years of legal investigation--it is not surprising that a relatively small number have been brought. We can argue over whether these are all unjust accusations against firms of stellar virtue, or merely the tip of the criminal iceberg.
  • The "capital punishment" works both ways. The Feds (specifically, the White House and DHHS, given that the executive branch and DOJ are the ones bringing the suit) know what would be the consequence of actually putting AstraZeneca, Pfizer, Merck et al out of business. First, all their thousands of employees are thrown out of work in the middle of a major recession. Second, millions of patients who rely on brand-name drugs that have no generic equivalent suddenly are deprived of those drugs without warning. If you imagine the political pressure generated by both of those aggrieved lobbies, you can see why the Feds simply would never lower the boom completely on a drug company guilty of even the most egregious behavior. (We have to add that the actual criminal behavior was no doubt engaged in by a tiny handful of company employees, with the vast majority of the workforce being blameless.)
  • The end result is that the Feds go well out of their way to never shut down a big drug firm--and resort to subterfuges such as in the Pfizer case, where they "shut down" two drug firms that had actually shut down years previously and no longer existed except as paper targets (
  • So the real power remains in the hand of the drug firm that's "too big to shut down," analogous to the Wall St. bank that's "too big to fail."
As I have argued in the past this seems to support the role of criminal prosecutions (perhaps for misdemeanors) of high officials of the drug company rather than "capital punishment" for the whole firm. (See post linked above.) But at any rate, the ACRE view of how this all goes down seems to me about 180 degrees off kilter.


Michael Kirsch, M.D. said...

Howard, with regard to the financial institution that are 'too big to fail', have you been reading the papers over the past year? While you might be correct that the settlements that are squeezed from Pharma don't pose an existential threat, they are in some cases a new form of taxation. The drug companies, like Wall Street, has been demonized. Do you recall the billions that were paid by Dow for alleged breast implant-induced diseases, even though there was no sound scientific evidence in support? I carry no water for the drug companies. But, as a physician who supports tort reform, I am very sensitive to abuses that can be promulgated against the innocent. Of course, when a company clearly breaks the law, then it should be accountable. This can be quite murky, however, particularly when quality issues and 'cover-ups' are alleged.

Howard Brody said...

Dr. Kirsch, as usual, raises a pertinent point. If I thought from the facts, as revealed by available sources of information on the behavior of drug companies, did not support the legal charges leveled by the Feds, I would never be in favor of the company having to pay fines just because I think drug companies are too rich and so they should be punished. In each case where I have been able to follow a trail of evidence, such as documents released as a result of legal discovery, there seemed to be ample evidence of the wrongdoing that was alleged. I did not make that a part of my initial argument simply because I did not expect that many members of ACRE would care what I thought about the matter, and would assume that my assignment of probable guilt to the drug company resulted purely from personal animus. As to whether Wall St. has been unfairly "demonized," while you have been reading the papers, I have been reading a few in-depth books about the recent financial collapse, and based on what I have read there is nothing at all unfair about the "demonization." (Specific recent claims about Goldman Sachs may be over the top, I admit.) And others outside of Wall St. certainly deserve a share of blame. But this blog is not about Wall Street.

Pharma Conduct Guy said...

Many of us have been thinking along the same lines as of late (see AstraZeneca Latest Pharma to Set Record Fine - $520 Million). In case you haven't seen Roy Poses' great post on the subject, checkout Explaining Health Care Executives' Impunity - the (Unexplained) Leniency of Prosecutors. Essentially, we're all making similar points.

Although I don't like to see a company break the law with impunity, I also don't like to see the government acting in a shakedown capacity. We all agree that these large fines are simply being viewed as cost of doing business rather than serving as a deterrent to future bad behavior.

There is a perverse equilibrium here that is not good for the average taxpayer or drug consumer. These fines basically amount to additional taxes, which is a cost that ultimately gets passed on to the rest of us.