A $3 Billion Fine for GSK Isn't the Whole Story

Last week GlaxoSmithKline announced it would try to settle a series of federal investigations by paying a $3 billion fine.  If the company can resolve the matter with the Justice Department, it will represent the largest single fine ever assessed against a pharmaceutical company, exceeding the $2.3 billion Pfizer paid in 2009.

The optimistic note for the future is that GSK's chief executive, Andrew Witty, has apparently decided to end the company's longstanding pattern of violations and, it is hoped, start a clean slate that renounces off-label marketing and several other practices.  Most of the ongoing offenses started well before Witty assumed the company's top position and some sources there claim the settlement will allow him to impose a new, more ethically appropriate culture at GSK.

At the same time, a background review of the Justice Department's investigation remains highly astonishing because the settlement covers the way GSK handled a wide range of business on all its best-selling drugs for more than a decade.

Some of the illegal acts uncovered by the federal probe include off-label marketing, fraudulent pricing to cheat Medicaid programs, entertaining physicians and paying them "advisory fees" to encourage prescribing, and suppressing critical data about a big-selling diabetes drug.  In other words, the misbehavior at GSK wasn't limited to some over-eager or unsupervised marketing and sales people.  Part of GSK's entire business operation functioned as a virtual, organized crime entity.

Even if the Justice Department agrees to the proposed settlement, there may still be further repercussions. The New York attorney general, other state AGs, and private parties are still preparing their own legal actions against GSK.

A number of business-side people working in pharma understandably believe that off-label marketing, ghostwritten medical research, and similar practices belong to a past that the industry has finally abandoned.  Some mid-managers may hold that opinion because many of them must routinely endure the intrusive, repressive presence of their legal counsel.  Lawyers not only look over mid-managers' shoulders, but also get in their faces to an extent that often hinders job performance.  As one marketing manager recently put it, "Lawyers justify their existence by putting out fires, so they keep their jobs by going around and shouting 'fire.' "

It is entirely possible, however, that the lawyers have merely squelched "retail" violations by sales people in the field and brand teams on the lower floors.  In its place, they brought violations inside and limited them to a smaller number of higher-level hands.  During prohibition Al Capone raised this possibility of decriminalizing a practice by getting a better class of people involved in it.  "When I do it," he said, "they call it bootlegging.  When they serve it from a silver tray on Lake Shore Drive, they call it hospitality."

The possibility that pharma has merely moved its violations upscale emerges from the fact that the Justice Department maintains an ongoing investigation of GSK under the Foreign Corrupt Practices Act (FCPA).  That DOJ probe concerns sales practices in at least nine countries involving high-level bribery.  Other large pharmas also disclosed recent legal matters related to foreign bribery.  These involve either indictments by foreign governments (see here, page 25) or FCPA probes by US agencies (here and here, page 33).

Raising the question to another level, one might ask what pharma is doing on an industry-wide basis about its history of promoting drugs for unapproved uses?  In fact, pharma actually is taking some united action.  Unfortunately it involves preparing an appeal to the Bush Supreme Court.  As a result of this effort, pharma hopes to receive a ruling that permits off-label marketing as Constitutionally protected, free speech under the First Amendment.

Perhaps Justices Thomas, Scalia and their libertarian brethren on the Court want to bring the freewheeling practices of Mexico to this country.  South of the border, many drugs are sold without prescriptions and gun control means using two hands.

Whether or not the Court wants to emulate Mexico, classifying off-label marketing as free speech remains part of a crackpot libertarian effort to make government just a handmaiden of private enterprise.  Under that line of thinking, it's not for government to decide whether the enterprises that should benefit from an anti-regulatory approach are those of the pharmaceutical industry or the Norte del Valle Cartel.  It remains more than astonishing that pharma would continue to operate with such a frame of mind.  Some would also consider it disappointing.

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