WASHINGTON - The drug industry has now become the biggest defrauder of the federal
government, as determined by payments it has made for violations of the
False Claims Act (FCA), surpassing the defense industry, which had long
been the leader, according to a new Public Citizen study released
today.

The study found that pharmaceutical cases accounted for at least 25
percent of all federal FCA payouts over the past decade, compared with
11 percent by the defense industry.

The fraud results were a key finding from a Public Citizen analysis
of all major pharmaceutical company civil and criminal settlements on
the state and federal levels since 1991 and found that the frequency
with which the pharmaceutical industry has allegedly violated federal
and state laws has increased at an alarming rate. Of the 165
pharmaceutical industry settlements comprising $19.8 billion in
penalties during the past 20 years, 73 percent of the settlements (121)
and 75 percent of the dollar amount ($14.8 billion) have occurred during
the past five years.

Many of the infractions, and the single largest category of financial
penalties, stemmed from the practice of off-label promotion of
pharmaceuticals - the illegal promotion of a drug for uses not approved
by the Food and Drug Administration (FDA). Off-label promotion can be
prosecuted as a criminal offense because of the potential for serious
adverse health consequences to patients from such promotional
activities. Another major category of federal financial penalties was
purposely overcharging for drugs under various federal programs, which
constitutes a violation of the FCA.

On the state level, the largest category of financial penalties has
come from companies deliberately overcharging state health programs,
such as Medicaid. Public Citizen's study found this to be the most
common category of violation among state settlements.

The increase in payments for fraud is likely attributable to drug
companies engaging in more wrongdoing and better enforcement at the
state and federal level, said Dr. Sidney Wolfe, director of the Health
Research Group at Public Citizen.

"Desperate to maintain their high margin of profit in the face of a
dwindling number of important new drugs, these figures show that the
industry has engaged in such activities as dangerous, illegal promotion
for unapproved uses of drugs and deliberately overcharging vital
government health programs, such as Medicare and Medicaid," said Wolfe.
Wolfe compiled and analyzed the data with physicians from the Johns
Hopkins General Preventive Medicine program, Drs. Sammy Almashat and
Charles Preston, as well as Columbia University public health student
Timothy Waterman, all of whom worked at Public Citizen.

Public Citizen's study also found that more than one-half of the
industry's fines were paid by just a few companies - GlaxoSmithKline,
Pfizer, Eli Lilly and Schering-Plough. These four companies accounted
for more than half of all financial penalties over the past two decades,
paying $10.5 billion in fines collectively. These pharmaceutical
companies were among the largest in the world. The two largest criminal
penalties ever assessed by the U.S. government against any companies
were against Lilly ($515 million) and Pfizer ($1.2 billion), both in
2009.

To conduct the study, Public Citizen created a database of
information about pharmaceutical companies' civil and criminal
settlements, including information about the type of alleged violation
and the amount of money paid in settlements. This study is the first to
attempt to document and analyze all major pharmaceutical company
settlements with both federal and state governments, the authors said.

Nationally, former pharmaceutical company employees and other
whistleblowers have been instrumental in bringing to light the most
egregious violations; they have initiated the largest number of federal
settlements in the past decade. The number of federal settlements
arising from whistleblower cases has more than doubled over the past
five years, yielding total payouts more than two and a half times higher
than in the previous 15 years combined.

Needed remedies include imposing steeper financial penalties and
criminally prosecuting company leadership, including jail sentences, if
merited.

"The danger to public safety and loss of state and federal dollars
that comes with these violations require a more robust response," Wolfe
said.
 

To read the full report, visit http://www.citizen.org/hrg1924.