Feds Consider Banning Execs For Fraud
32 CommentsBy Ed Silverman // April 20th, 2010 // 8:42 am
Drugmakers that repeatedly defraud the government may be forced to sell meds, relinquish product exclusivity, or fire execs and have them banned from working at other companies that do business with the government, Lewis Morris, the Health and Human Services Inspector General tells Inside Health Policy (subscription required).
The warning comes after a growing number of instances in which drugmakers have handed large fines for off-label promotion and concerns that large fines are considered to be a cost of doing business. In fact, Pfizer created a shell to pay its fine and avoid the possibility of being excluded from contracting with Medicaid and Medicare, a route the government has avoided over fears patients would be hurt (see here).
And so Morris tells IHP that he is aware of the concerns over fines and individuals need to be held accountable. So what might be done? One option is called the “responsible corporate official doctrine.” Prosecutors may not be able to prove individual execs directly participated in fraud, but if they were in a position of authority and responsible for company integrity and failed to stop fraud, they can be held accountable, IHP writes.
As IHP notes, holding a corporate exec accountable may mean using the IG’s “exclusion” authority, which involves banning drugmakers or execs from doing business with the government. One example - Purdue Pharma, which makes OxyContin. Three senior execs pled guilty to felony misbranding as part of a settlement, although they are now suing to overturn the IG decision to bar them from working at companies that do business with the government (see here).
The IG also is deciding whether it can force drugmakers to sell product, which would allow the government to keep products available. Another option is to threaten to take away product exclusivity that protects brand-name drugmakers from generic competition.
Patrick Burns of Taxpayers Against Fraud tells IHP that he doubts this last approach will work, because it relies on hurting companies financially, and that the only way to stop fraud is to hurt individual execs financially. “At some point the power of cheese isn’t enough and you need Cesar Millan,”
he said, referring to the celebrity animal trainer.
Anne PME
Does anyone know when the FDA last debarred a pharma exec?
Would these executives have increased liability under FCPA’s books records and internal controls provisions….specifically, the internal controls provisions?
Also, it would seem to me that at some point, these execs and/or board members would become uninsurable. Maybe if they were forced to pay for their own D&O insurance….self insured if you will….they would be more cautious and proactive.
harpy
a minor point but it was the subsidiary, Purdue Frederick, that pleaded to felony misbranding and was automatically debarred. the execs pleaded to criminal misdemeanor on the theory of strict liability which is not an automatic debarment but is left to the discretion of HHS-OIG. that’s why they’re trying to appeal it.
@ Anne - the Purdue execs are the latest I’ve heard of being debarred, which effectively ended their careers in the healthcare industry for the length of their debarment - in their case 12 years.
Pharma Conduct Guy
I’ve long wondered why the government uses the excuse that punishing a company by debarment would harm patients, so fraud committing execs are basically let off the hook and the company is forced to pay a fine.
Even though a fine is a punishment, so long as the companies can afford to pay it and nobody goes to jail, such fines are simply a cost of doing business that is factored into the process.
To simply let the execs off the hook because the company is too big to nail is a specious argument. For example, as Ed’s post mentions, the government could probably issue the equivalent of a consent decree, which would require that the company continue to provide “essential, lifesaving medication.”
Of course Congress could also pass new laws giving executives more liability, but we know that will never happen so long as those same execs continue to pour money into campaigns and are represented by the best lobbyists money can buy.
Mike Wokasch
Fines, penalties, and settlement dollars are proving to be meaningless as deterrents. Holding executives personally accountable with personal consequences is the only way these indiscretions will stop. Also, like the SEC disgorges financial gains for illegal activities, I see no reason why pharmaceutical companies shouldn’t have product revenues and profits from illegal promotion disgorged for the time during which the activities allegedly occurred.
patrons99
@ Mike and Pharma Conduct Guy -
You’ve nailed it!
“To simply let the execs off the hook because the company is too big to nail is a specious argument.”
“Holding executives personally accountable with personal consequences is the only way these indiscretions will stop.”
“…I see no reason why pharmaceutical companies shouldn’t have product revenues and profits from illegal promotion disgorged for the time during which the activities allegedly occurred.”
Disgorge their ill-gotten gains and hold the execs personally accountable with personal consequences! How about also adding a “two strikes and you’re ["out"] company is permanently barred from medicare reimbursement” rule? New legislation with “teeth” would certainly help.
M Helm, MD
I like all of the above comments, but the threat of ALSO decreasing time of market exclusivity would be a signficant deterrent.
Personally and professionally, I doubt very seriously that suspending the government business with any one (even several) manufacturers would risk harm to patients. There are almost always alternative treatments - which is a consequence of the “me-too” product development strategies most manufacturers have followed.
The system as currently designed is perfectly engineered to generate the results we have. This is not the only industry where you can find fraud without real consequences. However, to get away with it, you have to be “too big to fail” or some variation on that theme.
MsPiggy
I wouldn’t be holding my breath on this considered policy change being the end all corporate ethics fix. The upper management positions and the CEO’s have huge golden parachutes with a ton of stock (Being put out to pasture in a lush green meadow isn’t going to hurt all that much in reality).
We have seen evidenced time and time again what an inadequate bad joke CIA’s and fines have on the corporate criminal model which sails along business as usual.
In my humble opinion the only way at this late juncture in the criminal gamesmanship that can even begin to curb these continuing illegal practices is some serious jail time leveled against responsible party’s, and the business ban death penalty finally being used as written in the law.
Oh that’s right!!!They are to big to fail or be held responsible. At least that’s the myth Wall Street, the Corporations, and Government want you to believe.
doc
Lock em up! Let them spend their Golden Parachute cash after 10 years in jail, that will stop them.
Former Pharma Marketing Director
In another thread here a week or so ago, wasn’t there a pole? Didn’t people argue that it would be too harmful to patients to punish the companies from not doing business with the government.
This is the same argument. You fine the executives, and you make it very clear that the government will not do business with these types of companies who are frauding them. How can we as a people ever agree to force our government to do business with criminals? It is insane….
Justice in MI
“How can we as a people ever agree to force our government to do business with criminals?”
Well, there’s at least a score of criminal human rights violators that we do business with every day. And their crimes make pharma’s, at its worse, look like diddlysquat, indeed.
I’ll support cutting off government contracts with Pfizer when we also stop all business with China, Egypt, Saudi Arabia, and on and on and on.
Did the folks above also support a trade embargo against Cuba? Was that our finest hour?
I don’t think so.
Justice in MI
We’ve also lost track of the criminal bankruptcy scenario in which responsible execs are barred but the company still operates under a kind of “ethical receivership” until the house is put in order.
It is _not_ necessary, or just, to punish innocent people and destroy companies in order to satiate a _sense_ of justice, rather than the actual thing.
Jack Friday
@Former Pharma Marketing Director - do you mean “poll”?
Freudian slip? Been to too many clubs??
;-)
patrons99
O.K., let’s get on with it. Here’s a list of elements for proposed legislative reform:
(1) disgorge their ill-gotten gains,
(2) hold the execs personally responsible,
(3) serious jail time for the execs involved,
(4) permanent debarment of the execs involved from healthcare industry,
(5) decrease the time of market exclusivity for the product(s) involved, and
(6) permanent debarment from medicare reimbursement for the company on the second violation.
Of course, these elements can each be discussed further, added or deleted, restated, fine-tuned, tweaked, and given the correct legalese.
patrons99
Maybe some of us should consider forming a new group which could be called “Consumer Advocates for Healthcare Legislative Reforms”.
We should add an element to the above list:
(7) require the CEO of each company to sign every written, formal communication with FDA, OIG, DHHS, including all NDAs, and sNDAs, certifying that no fraud was involved.
An element similar to this one, with proper legalese, was originally suggested by Condor in a pharmalot posting of a couple of months ago. It has a certain similarity to a SoX (Sarbanes-Oxley) compliance statement.
M. Black
Well, now is the chance to drop the hammer effectively. And if they don’t, I’m sure they will be reminded of that come election time(s).
This is the kind of info needing to be reported.
Anne PME
Does anyone know how the Park Doctrine plays into this?
It seems like a lot of tools are already there but what is lacking is collaboration between various entities and enough resources to enforce existing mandates.
Former Pharma MD
This would be such a fantastic move! For far too long, these cheats repaet the same worngs over and over again and are never held accountable. Unfortunately, the good ethical people get the shaft while the gutter-dwellers get the riches. I can think of several current and former high-ranking executives that could be handled in this way. If they can’t do things ethically, moarlly and right, kick them out of the industry and refuse to deal with any company that continues to employ them. Then and only then will the overdue housecleaning take place. These crooks make me sick! Potentially harm people jsut for more profit! Greed rules Big Pharma!
Justice in MI
Agree with Anne PME. I quoted Braithwaite on Park doctrine a few weeks ago in a thread related to this one. It does, indeed, set a precedent for holding CEOs and other highest execs responsible, with the usual “deniability” not being an option.
As far as I know, Park has never been used to actually jail a senior exec (who is not otherwise clearly to blame). Rather, significant fines have been levied. But, also as far as I know, nothing in Park would prevent jailing as a sanction.
Re: Patrons list, I like all except (6), permanent debarment from medicare (and I assume he’d mean all federal buying) for whole companies. I know a number of people who depend on Medicare for drugs for which there are _not_ “me-toos” (or the other drugs in class aren’t options) and without which they would sufferly severely, or worse.
Instead, I would substitute a mandated and radical reconstruction of corporate ethical culture, from the ground up, and especially for brand teams. There are ways to do this with institutional arrangements, including both internal and external reporting systems.
patrons99
Thanks Anne. Very helpful comment. I had never heard of the Park Doctrine. But then I am not a lawyer, either. It is certainly relevant to this discussion. We need more strict liability criminal prosecutions of pharma executives under the responsible corporate officer doctrine.
http://www.hpm.com/pdf/FLEDERPARK.PDF
http://www.fdalawblog.net/fda_law_blog_hyman_phelps/2009/09/will-we-see-more-strict-liability-prosecutions.html
http://www.questia.com/googleScholar.qst;jsessionid=LPMdGZkVLQVkJQN19LM5Xpppqv5YLfL4mzvN1vb3c1TgzHT112F2!-1324494580!-1066514984?docId=5002007362
patrons99
Sorry bout that questia.com link above. It didn’t work very well when I tried it. Here’s one more link on the Park doctrine that may work better. It worked when I tried the link out. I couldn’t find a good wikipedia link on it.
http://www.martindale.com/criminal-law/article_Duane-Morris-LLP_952084.htm
Evelyn Pringle
I am not from Missouri but I still say “show me.”
I’ll believe this will happen when it does and not a minute sooner.
Pharma Conduct Guy
So if I draft a letter to Senator Chuck Grassley and Rep Henry Waxman outlining our proposed reforms (thanks Patrons99 for enumerating the list), how many of you would be willing to add your name to it?
Salmon
I think Larry Alphs at Pfizer should be banned.
See my comment at
http://www.pharmalot.com/2010/04/fda-warns-pfizer-over-geodon-trial-overdosing/
Salmon
patrons99
@ Pharma Conduct Guy (12:15 pm) - count me in! I’ll sign such a petition.
The mainstream media ought to be copied, too. Such a petition needs widespread media coverage.
patrons99
We might wish to consider adding another element, based on Anne’s input:
(8) hold the execs criminally-liable under strict liability and the responsible corporate officer doctrine.
harpy
not to rain on your parade when you’re feeling good, but I would suggest reading some of the recent plea agreements, non-prosecution and deferred prosecution agreements, and corporate integrity agreements before drafting your letter. many of your ideas for detering bad conduct are already available to the prosecutors and the courts, they simply don’t want to take such drastic measures…yet.
patrons99
Thanks for the reality check, harpy.
Former SP
I can immediately think of a few candidates to be the first pursued under this new proposal. In my opinion, they ran my former company, along with a few others, into the gutter!
Rudra
(9) A second conviction of the same corporation within five years will force the dissolution of the corporation, confiscation of its assets under the RICO statutes. No reimbursement will be offered to stockholders.
I’m thinking third conviction might make this more consistent with other laws. Essentially, this is “the death penalty” as applied to a corporation.
Part of the reason that these things can and do exist is that their “absentee owners” do not pay attention to what “their” company is doing. They share some responsibility. If investors were losing real money, this practice would change in a heartbeat.
patrons99
Thank you, Rudra. An excellent contribution to “the list” of suggested elements for a proposal for legislative reform and a petition to Congress.
patrons99
Is pharma really too big to fail? I don’t think so. With the right legislative reforms, the ship can still be righted. Society can still have hope for miraculous “cures”. But we will not get there by not holding pharma accountable for what they do. All of the “innovations” and societal “good” that pharma hoped to do, should not matter. A clear message needs to be sent that pharma will be held accountable by governments for what they did. If one or more companies are taken down, so be it. There will be others to rush in to take their place. If some big pharma actually fail, we will all be better off over time.
Pharmulator
Any company that’s too big to fail is too big to exist. Break them into separate companies that are not too big to fail.
Makes no sense to me to punish innocent employees and stockholders for the unethical actions of execs. Only imprisonment for those responsible will be effective. Fines for these individuals may be meaningless considering their gross overcompensation. I would agree that corporate ill-gotten gains should be forfeited.