The routine is now maddeningly familiar: The U.S. Justice Department announces that some huge drug company has broken the law and defrauded government healthcare programs of tens of millions of dollars. Prosecutors use terms like "illegal kickbacks" and "conspiracy" to describe the schemes they have discovered. And large financial penalties are trumpeted as evidence that justice has been done.
But there is nearly always something missing in these cases: Criminal charges against the Big Pharma executives who orchestrated the frauds. Worse, the companies involved typically do not even admit any wrongdoing. Strangely, these serious crimes don't seem to involve any actual criminals.
The latest example is the settlement announced earlier this week by the Justice Department with three drug makers, including Abbott Laboratories. Collectively, the firms will pay $421 million as result of charges that they overbilled the U.S. government for medicines. Abbott will pay $126.5 million.
Abbott and the other firms were nabbed for a type of fraud that is widespread in the healthcare field, namely telling the government that drugs cost one price while charging healthcare providers a much lower price. This allows healthcare providers to get reimbursed by Medicare and Medicaid for much more than they actually spend on drugs, what's known as a "spread." Drug makers engage in this scheme to incentivize providers to use their drugs. Taxpayers get soaked because drug makers inflate the price of drugs beyond what is justified so they can offer a nice spread to providers yet still make a profit. These schemes are one reason why the costs of Medicare and Medicaid have been sky high, while Big Pharma makes record profits and doctors drive Mercedes. And it's not just the federal government that gets stuck with an inflated bill. States overpay, too, since states pick up part of the tab for Medicaid. In turn, high Medicaid costs can squeeze out spending on other priorities -- like education.
This is outrageous stuff, and government authorities have been hopping mad for years. The Justice Department has gone after nearly every major drug maker, often repeatedly, and state attorney generals have also joined the fight. In announcing the settlement earlier this week, the Justice Department played up just how tough the crackdown has been:
Since January of 2009, the Justice Department's Civil Division and the U.S. Attorneys around the nation have recovered more than $9 billion in cases alleging false claims, fraud against the government, and violations of the Food, Drug and Cosmetic Act. Cases alleging fraud or false claims against government health care programs are the largest portion of these recoveries, and during this period the Justice Department has opened more health care fraud cases, secured larger fines and judgments, and recovered more dollars lost to health care fraud than in any other period: more than $5 billion. Criminal fines, forfeitures, restitution and disgorgement under the Food, Drug and Cosmetic Act have yielded another $3 billion, again a record number.
All that sure does sound serious. So it is bizarre that the specific individuals who perpetrate these criminal schemes are nearly never held responsible. Nor are their names even mentioned in most of the cases. (Top executives at Abbott Laboratories include: Miles D. White, Richard A. Gonzalez, and Donald V. Patton. The COO of Roxane Laboratories, one of the other firms named, is Robert Fromuth. The CEO of the third firm named, B. Braun Medical, is Caroll H. Neubauer. None have been accused of wrongdoing.) And despite clear evidence that crimes occurred, the companies are not forced to acknowledge criminal deeds. In fact, they typically deny any wrongdoing even as they fork over record sums to settle claims by the Justice Department. So it was that on the same day that DOJ announced its settlement with Abbott Laboratories, a company spokesperson said the following: "We continue to believe that we have complied with all laws and regulations and have entered into this agreement to eliminate the uncertainty associated with continued litigation."
You can find similar statements by drug makers in nearly every large settlement involving the defrauding of U.S. government programs. And you'll hear the same language in settlements about the illegal marketing of drugs. For instance, last year Pfizer agreed to a record $2.3 billion penalty -- but still denied any illegal behavior. Basically, these cases amount to Big Pharma and the Justice Department agreeing to disagree as to whether any laws were actually broken. And instead of executives being punished, it is shareholders who pick up the tab for criminal behavior.
Sidney Wolfe, a doctor and consumer advocate with Public Citizen, said about the Pfizer settlement at the time that it may seem large, "but it's not enough to ensure drug companies will curb their bad behavior." Wolfe said what drug makers were doing was "part of well-organized crime in this country" and the penalties wouldn't deter more such crime "because they represent just a fraction of drug company profits and no one has gone to jail."
The latest slap on the wrist for Big Pharma this week shows that nothing has changed.
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