The Department of Health and Human Services (HHS) is asking Congress for the power to boot executives convicted of Medicare fraud from federal health programs such as Medicare and Medicaid. These booted executives will struggle to find new employment in the industry, considering the U.S. government is the largest prescription drug customer in the world. Specifically, HHS wants the authority to kick out anyone “who was in a position to have stopped the fraud that led to a criminal conviction or plea.”
Over the past decade, the United States Department of Justice has made fighting pharmaceutical fraud one of its top priorities, acquiring historic, massive settlement agreements from major pharmaceutical companies like Pfizer and AstraZeneca. However, despite increased enforcement, and monetary penalties in the billions of dollars, these major pharmaceutical companies often do not change their behavior, and wind up settling cases with the government on multiple occasions. AstraZeneca settled an illegal marketing case for their drug Zoladex for $355 million in 2003, and wound up settling another case for $520 million earlier this year. Another large pharmaceutical company, Pfizer, is already on its third Corporate Integrity Agreement (CIA) due to multiple allegations of fraud. This high degree of corporate recidivism has led several strategies which attempt to cut down the number of repeat offenders.
The first and most obvious solution to the problem of corporate recidivism in pharmaceutical fraud is to impose massive fines on the company for illegal activities. But as any college freshman taking Economics 101 can tell you, a fine won’t change behavior unless it changes the cost-benefit analysis. If it is more profitable to engage in illegal marketing and pay a fine than it is to not engage in illegal marketing and pay no fine, rational corporate executives will pay the fine more often than not. When AstraZeneca paid $520 million to settle allegations of the illegal marketing of its drug Seroquel, that seemingly enormous fine represented just 16.5% of its total revenue for that drug in the approximately 5 years that illegal marketing was taking place. As long as revenue from illegal marketing exceeded $520 million (which according to TIME magazine, it likely did), the most profitable decision was to break the law.
Aside from major fines, a second solution from to cut back on repeat offenders is to exclude entire companies from participation in federal health programs such as Medicare and Medicaid. However, as the now famous CNN article “Too Big to Nail” pointed out, this law became nothing but hollow words when it came time to prosecute the pharmaceutical giant Pfizer. The thinking went as follows: if Pfizer is convicted of pharmaceutical fraud, it will be kicked out of Medicare and Medicaid. If kicked out of these programs, it will likely go out of business. If Pfizer goes out of business, it will have enormously negative effects on the people whose lives depend on getting a steady supply of drugs. The logic made so much sense that the government allowed Pfizer to create a shell corporation specifically designed to plead guilty and suffer the consequences, leaving the policy of excluding companies from federal health programs with a huge loophole.
Finally, the government is also authorized to exclude individual people from federal health programs – similar to the power they are now asking from Congress, with one large exception. Under the law today, executives convicted of fraud are only barred from the federal health programs if they are with the same company. If the HHS receives the power they are asking from Congress, it would close this loophole in the rules, and hopefully provide a much greater deterrent for executives who promote and engage in a culture of fraud.
However, there is still one problem with this solution: criminal convictions are hard to come by. To avoid protracted litigation, defendants and the U.S. government are more inclined to settle, leaving the government with the opportunity to collect some money, and leaving the defendant the ability to simply pay a fine. Admittedly, the federal government has been increasing the enforcement of existing anti-fraud statutes, and also has been crafting new measures to eliminate a culture of fraud. However, if the United States wants to truly put an end to a vast culture of fraud within the pharmaceutical industry, it will need to stop treating some executives like innocent bystanders making minor administrative mistakes, and start treating them like the criminals they are.