Pharma’s Real Knaves

By guest blogger Daniel Hoffman:

Last week Novartis agreed to pay $422 million in fines and penalties for off-label marketing and bribes to physicians. Ho hum! Hardly a week goes by without news about one pharma company or another paying a large criminal fine or civil penalty. The transgressions typically involve either off-label promotions, nasty pricing practices, questionable inducements to physicians, deceptive product information or distortions of medical research and communication.

With that constant drumbeat, it’s no wonder the public holds pharma in low esteem. The industry has actually performed quite a feat, when you stop and think about it, because the companies generate their biggest revenues by developing products to improve the length and quality of life. That contrasts with industries such as tobacco, whose products are entirely harmful, and others (automotives? petroleum?) that produce decidedly mixed blessings. Despite a mission where public benefit provides the best means of making private profit, the drug industry has managed to become the business world’s villain-in-chief. In 2008 the Kaiser Family Foundation found that 44% of adults in the US hold an unfavorable view of pharma and 70% believe the companies are too focused on profits and not enough on helping people. The next year, despite being the low point of a crisis where financial service companies nearly put the entire world into an economic depression, Harris Interactive’s industry-reputation poll concluded pharma was the only industry to show a year-to-year decline in reputation.

A couple of things are worth noting as far as this pattern of pharma’s checkered behavior. First, unlike certain shady ventures where even people at the bottom of the organization know they are furthering a questionable enterprise, the sales rep next door, the chemist down the block and the marketing analyst from the cocktail party are almost certainly doing honorable work. The problem lies in the huge chasm between them and the fiduciary offers at the top. These top executives, in their single-minded pursuit of quarterly earnings growth by whatever means, provide fodder for cynics who refer to Big Pharma as “the country’s largest, organized crime entity.”

Work as a middle manager at a pharma company these days means receiving a barrage of double messages. On the one hand, virtually everyone has to undergo compliance/responsibility training. On a daily basis everyone receives can’t-do-this and can’t-do-that memos. At the same time the top managers tell their underlings, “The investors are demanding we meet these revenue projections. Do you think you can do it? If not, we’ll find someone who can.”

As the transgressions continue without pause, a second point worth making is that the CEOs are Caesars within their domains. Neither their own boards nor the market can chasten their pursuit of individual wealth. Can anything?

Yes. The federal government and aggressive plaintiff’s attorneys can take pieces out of management’s hides. Recently the chief lawyer at the U.S. Department of Health and Human Services told the British Medical Journal that they are considering  some nasty steps against drug companies that are flagrant or repeat offenders. These include making a company divest the business unit that was guilty of a major transgression, breaking its patent, pursuing physicians for receiving kickbacks and making senior executives criminally liable for corporate misdeeds.

Few things will spur a CEO into conducting a major housecleaning like the prospect of getting his pants pulled down in open court by a first class litigator. Similarly, some of the government sanctions under consideration may make company directors force CEOs into acting as if they had a conscience. Can stiff legal penalties create better, more law abiding citizens? As the sheriff in the movie Fargo put it, “You betcha.”

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