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Study: Pharmaceutical Drug Companies Top Military Industry in Defrauding U.S. Gov't

StoryDecember 17, 2010
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Dr. Sidney Wolfe

director of Public Citizen’s Health Research Group and co-author of the new report, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010.

A new study by the watchdog group Public Citizen has found that the pharmaceutical drug industry has become the biggest defrauder of the federal government, surpassing the defense industry. Public Citizen found that the drug industry paid out nearly $20 billion in penalties over the past two decades for violations of the False Claim Act. More than half of the industry’s fines were paid by just four companies: GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough. [includes rush transcript]

This is a rush transcript. Copy may not be in its final form.

JUAN GONZALEZ: A new study by the watchdog group Public Citizen has found that the drug industry has become the biggest defrauder of the federal government, surpassing the defense industry. Public Citizen found that the drug industry paid out nearly $20 billion in penalties over the past two decades for violations of the False Claims Act. More than half of the industry’s fines were paid by just four companies: GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough.

AMY GOODMAN: Dr. Sid Wolfe joins us now from Washington, D.C., co-author of the report, director of Public Citizen’s Health Research Group.

Dr. Wolfe, thank you for being with us. Lay out your study. What did you find? The largest defrauder, even more powerful than the weapons industry?

DR. SIDNEY WOLFE: Well, good morning.

Well, it’s interesting. In 1863, even back then, the defense industry was defrauding the federal government in contracts during the Civil War. They passed something called the False Claims Act back in 1863. And up until very recently, the number one defrauder has been the industry that caused the law to be passed in the first place: the defense industry. But back in the last decade or so, slowly, but surely, the defense industry has been overrun, so to speak, by the pharmaceutical industry. In fact, it’s overrun all the other industries that have claims paid under the False Claims Act.

And what this constitutes, in many cases, is just deliberately, maliciously overcharging the United States government through programs like Medicare and Medicaid and other kinds. We’re just talking about the federal payments under the False Claims Act. Back in 2001, for the first time, in one year, the defense industry was overtaken by the pharmaceutical industry. Now, consistently for the last three years, the major violator is the pharmaceutical industry. And those are only civil penalties. In addition to that, this $20 billion that we tallied over the last 20 years includes a number of criminal penalties. The very same Pfizer that Joe Stephens and his co-workers so thoroughly investigated, and James Steele just talked about, paid the largest criminal fine ever in the United States for any company, for anything, back in 2009. It was $1.2 billion for illegally promoting drugs that weren’t approved for certain things for other things — in other words, illegal off-label promotion. So it’s a combination of civil violations, such as the False Claims Act, and criminal violations that tallies up to $20 billion.

The interesting thing is that, of that $20 billion, three-quarters of it has just been in the last five years. So what we’re witnessing is an escalation of well-organized criminal and other kinds of legal — illegal activity by the pharmaceutical industry. Why are they doing this? Well, one reason is that they have a pretty empty pipeline in terms of new drugs, important new drugs. And so, in order to keep up their extraordinarily high profit margin, what they’ve done is overcharged the government illegally — they are the number one False Claims violator —- and, increasingly, illegally promote drugs for off-label use. This can be a danger to the public health, because if you have a drug that you don’t have evidence that its benefits outweigh its risks, you may well be endangering people’s lives, which is why criminal penalties affix themselves to these kinds of violations. So, this industry -—

AMY GOODMAN: Give us examples.

DR. SIDNEY WOLFE: — aside from what we’ve just heard, which — in terms of human experimentation, is a major violator of both criminal and civil laws in the United States.

I’d just like to add something to what James Steele said, which is, we call this industry the human experimentation corporations. The biggest human experimentation corporation is right here in the United States. It’s called Quintiles. They do experiments for drug companies as quickly as they possibly can all over the world. We found an ad from Quintiles that sells to the drug industry: "We help you recruit drug-naive subjects in many developing countries." So this industry, in terms of exporting human experiments — and it really is a business — in terms of criminal violations — off-label marketing, illegal — in terms of False Claims Act, is really at the forefront. They parade themselves — and they do some good things; they do develop some good drugs. Is it really necessary for them to engage in criminal behavior, in civil violations and in very unethical human experimentations around the world? We think the answer is no.

A top lawyer at the FDA has recently said, "The only way we’re going to stop this industry from violating these laws, endangering people, is to start putting people in jail." No one has ever gone to jail from one of these drug companies for these criminal violations. The size of the penalties is miniscule compared with the profits. Two companies, as mentioned — Glaxo and Pfizer alone — have paid $7 billion or $8 billion in the last 20 years. In one year, those two companies make about $15 billion or $16 billion in profits. So, until they are adequately assessed penalties that compare with the amount of money they’ve made off of these various drugs, until people are put in jail, if appropriate, this industry is going to keep running away.

And one other thing that was alluded to by James Steele is, this industry directly finances the FDA through cash payments. This year, between $700 million and $800 million in cash goes directly from the drug industry to the FDA. It pays for about two-thirds of all the review of drugs. So, in addition to the lobbying, the $200 million that James Steele talked about, there are direct cash payments, under a 1992 law that the Congress unwisely passed. So w have lots of problems with this industry. It does a lot of good things, but it is increasingly a menace in this country and abroad. As part of globalization, we’ve globalized human experimentation, and it’s a pretty nasty business.

JUAN GONZALEZ: Well, Sid Wolfe, precisely I wanted to ask you about this issue, that since they’ve had so many criminal penalties imposed upon them, as well as the civil cases, we’re dealing essentially with a handful of companies that are predicate felons in some degree, yet none of their individual executives, as you say, ever go to jail, or there’s no call to break up some of these companies. What can be done, what can the public do, in terms of putting pressure on the members of Congress to try to reform this system?

DR. SIDNEY WOLFE: Well, certainly, there’s been a terribly dangerous lack of congressional oversight over the FDA. Twenty-five years ago, one congressional committee, Senator Gaylord Nelson’s Senate Small Business Subcommittee, held 130 days of hearings on the drug industry and the FDA in about a 10-year period. That is five or 10 times more hearings than all the rest of the Congresses has had recently. So Congress certainly needs to step up oversight.

People need to support someone named Eric Blumberg. People probably have never heard of him. He’s the top litigator in the FDA. He gave a speech two months ago to drug industry and FDA lawyers, saying, "These companies are getting away with really dangerous activities. The only way we’re going to do something" — and he pledged to be part of this drive — "is to increase greatly the size of the penalties these companies have to pay and, when it’s appropriate, start putting people in jail." He was attacked, obviously, by the drug industry for saying these things. He’s absolutely right, and he needs to be supported. He’s in a position to do it. He’s the top litigating lawyer in the Food and Drug Administration.

So, whatever can be done needs to be done. Our entire report, by the way, is on — the names of the companies, the biggest violators, the 20 examples of the worst kinds of criminal and/or civil violations for which people —- companies pay money. It’s a problem -—

AMY GOODMAN: Dr. Wolfe, we’re going to have to leave it there. Sid Wolfe, director of Public Citizen’s Health Research Group, and we’ll link to that.

DR. SIDNEY WOLFE: Good talking with you, as always.

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