Health Inc.

When It Comes To Government Fraud, Health Care Now Tops Defense

Justice Department officials announce a fraud settlement with Pfizer. i i

Justice Department officials announce a fraud settlement with Pfizer in September 2009 over the marketing of prescription drugs. Chip Somodevilla/Getty Images hide caption

itoggle caption Chip Somodevilla/Getty Images
Justice Department officials announce a fraud settlement with Pfizer.

Justice Department officials announce a fraud settlement with Pfizer in September 2009 over the marketing of prescription drugs.

Chip Somodevilla/Getty Images

Drug companies are now No. 1 when it comes to defrauding the government, leaving defense contractors in the dust.

A report from the consumer group Public Citizen says financial penalties against drug companies under the federal False Claims Act far outstripped defense contractors between 2007 and 2010.

The 147-year-old law was originally enacted to prevent price-gouging on armaments during the Civil War. It's become modern prosecutors' most important tool for rooting out fraud by government contractors.

And lately it's been hard to keep track of all the settlements. Documented pharma fraud has been accelerating lately, Public Citizen says. It looked at fines and settlements paid by drug companies over two decades. Since 1991 those penalties totaled $19.8 billion. But three-quarters of those occurred over the past five years.

Mostly that's from allegedly illegal marketing — promotion of drugs for uses not approved by the Food and Drug Administration. The biggest example to date is Pfizer's $2.3 billion settlement the government reached last year with Pfizer over illegal marketing of the now-withdrawn painkiller Bextra.

That episode's emblematic of the trend. The key whistleblower in the case was John Kopchinski, a West Point grad and former Pfizer drug rep. He reaped more than $51 million for helping government investigators.

Whistleblowers — industry insiders emboldened to air secrets by the promise of a share in the penalties — are one reason lawsuits alleging illegal off-label promotion have piled up at an accelerating pace. Such practices were the subject of a report in October by NPR and the investigative group ProPublica.

Whistleblower cases made up only 9 percent of pharma payouts to the government in the 1990s, Public Citizen says. But in the past decade, that's ballooned to 67 percent.

Just four giant drug companies – GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough – account for more than have the pharma penalties over the past two decades. They belong to the Billion Dollar Club — companies that have paid out settlements of $1 billion or more. Altogether the four have paid $10.5 billion back to the government.

Another big category is overcharging state Medicaid programs. That accounts for the most settlements, 43 percent of all violations. Most of these violations took the form of companies publishing inflated benchmark prices that set the base for Medicaid drug payments. "In some cases, state Medicaid programs were paying providers as much as 12 times the actual cost of a drug," the new report says.

Why the big jump in pharma fraud? More aggressive enforcement plays a role. But so does the dwindling pipeline of new drugs, which Public Citizen says pressures companies to "maximize sales of their existing profits by any means."

Despite the soaring penalties, the consumer group says the current system of prosecution and recovery isn't working, because companies can take even the biggest settlements in stride. What's needed, says Public Citizen, is more criminal prosecution — and the prospect of jail time for pharma executives.

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