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Big Penalties for Big Pharma: Just Another Cost of Doing Business

Last week, the Department of Justice announced that pharmaceutical giant Pfizer Inc. and its subsidiary, Pharmacia & Upjohn Company Inc., agreed to pay $2.3 billion to resolve claims of illegally promoting and/or misbranding certain pharmaceutical products. It is the largest health care fraud settlement in the DOJ’s history.

In recent years, the pharmaceutical industry has been involved in several civil, criminal and administrative actions that have resulted in record-setting penalties. Two of the biggest are in our Federal Contractor Misconduct Database: Merck & Co.’s $4.85 billion settlement of Vioxx lawsuits and GlaxoSmithKline’s $3.4 billion settlement with the Internal Revenue Service. Collectively, the four pharmaceutical companies currently in our Top 100 – Merck, GlaxoSmithKline, Sanofi-Aventis and Wyeth – account for 36 misconduct instances and a staggering $10.5 billion in penalties (about 40 percent of the total).

The Pfizer settlement also includes a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG), under which Pfizer promises to institute various corporate changes to ensure it does not misbehave in the future, or else face further monetary penalties or, if the breach is serious enough, exclusion from participation in federal health care programs. However, if you read Pfizer’s press release announcing the settlement, you’ll find buried at the bottom the surprising revelation that Pfizer was subject to a prior Corporate Integrity Agreement.

Pfizer is referring to this May 2004 Corporate Integrity Agreement. This agreement, which expired earlier this year, was also with the HHS-OIG and also involved illegal promotion of a drug product, for which Pfizer agreed to pay the federal and state governments more than $430 million in civil and criminal fines. The $240 million criminal fine Pfizer paid the federal government was the second largest in health fraud history up to that point.

Granted, the 2004 agreement involved the conduct of a subsidiary, Warner-Lambert, which Pfizer acquired after the illegal conduct had occurred, but Pfizer accepted full responsibility for Warner-Lambert’s conduct and agreed to put in place compliance systems to ensure it would not happen again. Yet it did. According to the New York Times, this is the fourth time since 2002 that Pfizer has gotten in trouble with the government over its marketing practices. As ABC News medical reporter Radha Chitale cynically observes, “more stringent government oversight is necessary, but…as long as the profits are bigger than the penalties, drug companies are unlikely to revise their marketing models.”