"Drug companies are now No. 1 When it Comes to Defrauding the Government"

A new report from Public Citizen, as summarized by National Public Radio:
Drug companies are now No. 1 when it comes to defrauding the government, leaving defense contractors in the dust.

A report from the consumer group Public Citizen says financial penalties against drug companies under the federal False Claims Act far outstripped defense contractors between 2007 and 2010.

The problem has been getting worse recently:
Documented pharma fraud has been accelerating lately, Public Citizen says. It looked at fines and settlements paid by drug companies over two decades. Since 1991 those penalties totaled $19.8 billion. But three-quarters of those occurred over the past five years.

Regarding the biggest offenders:
Just four giant drug companies – GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough – account for more than have the pharma penalties over the past two decades. They belong to the Billion Dollar Club — companies that have paid out settlements of $1 billion or more. Altogether the four have paid $10.5 billion back to the government.

Reading the report itself makes the acceleration of drug company fraud settlements even more apparent (p. 12):
Data from the Department of Justice shows that annual federal FCA settlement totals for all industries have increased dramatically over the past 20 years, from $341 million in fiscal year (FY) 1991 to $3 billion in FY 2010. The proportion attributed to all Health and Human Services (HHS) cases (i.e., cases that involve pharmaceuticals and other health care industries), increased from 4 percent of the total in FY 1991 to 84 percent in FY 2010.

the pharmaceutical industry did not comprise a substantial portion of federal FCA penalties until FY 2002, when it overtook the defense industry for the first time. For every year since and including FY 2007, the pharmaceutical industry total has far exceeded the defense industry total.

As stated above, the total healthcare industry (as represented by HHS totals), has been the biggest defrauder of the federal government under the FCA for most of the past decade. Defense industry payments and the combined total for all other (non-defense and non-HHS) sectors each represent an amount smaller than the pharmaceutical industry total alone since FY 2007. In addition, since FY 2008, the pharmaceutical industry’s FCA payments have exceeded the total law-violation payments of each of the other sectors within the health industry.

Of course, data about settlements of US False Claims Acts claims is only one, limited measure of unethical and criminal behavior. However, in lieu of better data, it is striking that the vast majority of such settlements are now by the health care sector, and the pharmaceutical industry in particular accounts for the biggest share of such claims within that sector.  

In my opinion, these data illustrate just how unethical, if not corrupt, health care in the US has become. It is particularly appalling because health care is not just another "industry," but traditionally was regarded as a calling to relieve suffering, and when possible prevent or cure disease. Traditionally, health care practitioners and health care institutions were held to higher standards than other industries, like the defense industry, or the trash hauling industry. Now, however, it appears that the health industry holds itself to the lowest standards.  Is it any wonder that our health care system is dysfunctional, or that our costs constantly rise, while access and quality decline.

This data should prompt massive outrage, and lead to yet more ringing calls (like those we discussed recently here and here) for reform, at least of specific aspects of health care.  I doubt that will happen, however, because these data, like so much of the cases and data we discuss on Health Care Renewal, probably will be muffled by the anechoic effect.

Despite its striking results, this report has not been covered in print by any major market newspaper. (Duff Wilson did blog about it for the New York Times.) The only US newspaper coverage so far appears to be in the New London (CT) Day. There has been no coverage on US television.

The Public Citizen report noted that the largest settlement for clinically related reasons was by Pfizer of $2.3 billion for unlawful promotion and kickbacks (see blog posts here). Despite the apparently staggering size of this settlement, a Google Scholar search revealed only one mention of it, and that rather tangential, in a large circulation US medical journal, the New England Journal of Medicine.(1) It was mentioned in the news sections of two major journals outside of the US, the British Medical Journal(2) and the Canadian Medical Association Journal.(3)

So unless US health care is about to change drastically, I do not expect any discussion of this data in the medical and health care literature. The likelihood that this report will be noticed by most physicians, health care researchers, or health care policy makers is almost nil.

Why does such striking information create so few ripples?  It has never been formally studied, to may knowledge.

However, I suspect it has to do first with the vast web of conflicts of interest that now drapes over health care.  As we have mentioned before, the majority of US medical school faculty,(4) and the majority of US medical schools' department chairs(5) have significant financial relationships with industry, often the pharmaceutical industry.   Some leaders of US academic mission are simultaneous members of boards of directors of for-profit health care corporations (e.g., see this example), and thus have fiduciary responsibilities towards those corporations.  Thus, how many academics are going to want to offend their employers, or their colleagues' and supevisors' employers, by writing about such recent unpleasantness as billion dollar pharmaceutical settlements for fraud? 

Second, it probably has to do with the power derived from the wealth of the leaders of pharmaceutical corporations, wealth they seem to amass no matter what ethical violations their companies pile up.  For example, according to the 2010 Pfizer Proxy Statement, Mr Jeffry Kindler, the CEO of Pfizer through this year, currently owns the equivalent of  1,084,212 shares of Pfizer stock (worth $18,615,920 at today's price of $17.17/ share), has the rights to 1,996,000 stock options, and received $5,534,285 total compensation in 2009, $7,553,015 in 2008, and $4,469,760 in 2007.  

I can only hope that the anechoic effect eventually breaks down, and a movement to truly reform US health care eventually develops.  True reform will require holding health care organizations to higher, not lower standards than trash haulers and gambling casinos, and regarding working in health care as a calling, rather than a means to satisfy one's greed.  

Hat tip to Prof Margaret Soltan on the University Diaries blog.

ADDENDUM (21 December, 2010) - See also this comment by Prof Margaret Soltan on the University Diaries blog, and comments (here and here) by "Condor" on the Shearlings Got Plowed blog.


1. Kesselheim AS, Studdart DM, Mello MM. Whistle-Blowers' experiences in fraud litigation against pharmaceutical companies. N Engl J Med 2010; 362:1832-1839. Link here.
2. Tanne JH. Pfizer pays record fine for off-label promotion of four drugs. Br Med J 2009; 339:b3657. Link here.
3. Anonymous. Federal committee to review Pfizer v-p appointment to CIHR council. Link here.
4. Campbell EG, Gruen RL, Mountford J et al. A national survey of physician–industry relationships. N Engl J Med 2007; 356:1742-1750. Link here.
5. Campbell EG, Weissman JS, Ehringhaus S et al. Institutional academic-industry relationships. JAMA 2007; 298: 1779-1786. Link here.