Pharmaceutical Industry Is Biggest Defrauder of the Federal Government

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 recent Public Citizen study.

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.

We analyzed 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.

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.

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.

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.

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.

To see the full report, go to www.citizen.org/hrg1924.