A Nirvana for Rogue Corporations

March 15th, 2018 by Phil Mattera

The SEC’s enforcement action against Theranos Inc. and its founder Elizabeth Holmes puts a new focus on the persistence of corporate crime in the healthcare sector after a period in which the business culprits getting the most attention were banks such as Wells Fargo and automotive companies such as Volkswagen and Takata.

Another reminder of the checkered history of health companies comes in a new report from Public Citizen on the trend in legal penalties imposed on pharmaceutical firms. The study, an update of three previous analyses on the subject done by the group, documents a disturbing trend: Although there is no reason to think that egregious drug company misbehavior has disappeared, aggregate criminal penalties against those firms have plunged.

Public Citizen finds that criminal penalties in 2016-2017 were just $317 million, down 88 percent from four years earlier. Combined federal criminal and civil penalties over the same period of time declined from $8.7 billion to $2.8 billion, a drop of more than two-thirds.

At the heart of this trend, the report finds, is a falloff in penalties from settlements of cases involving the unlawful promotion of prescription drugs. Those penalties are down by 94 percent from their peak in 2012-2013.

It is probably true that Big Pharma has toned down the brazen behavior that led to giant penalties such as the $3 billion imposed on GlaxoSmithKline, the $2.3 billion imposed on Pfizer, the $2.2 billion imposed on Johnson & Johnson, the $1.5 billion imposed on Abbott Laboratories, the $1.4 billion imposed on Eli Lilly, the $950 million imposed on Merck, etc.

One problem that has by no means disappeared is the improper distribution of opioids. Although Purdue Pharma was penalized $461 million in 2007  and various wholesalers and pharmacy chains have been hit with smaller fines since then, there is no indication that the misconduct is receding.

Part of the problem is that the president of the United States has directed little criticism against the drug industry while making inflammatory statements about illicit traffickers, including the suggestion of imposing the death penalty. He has also expressed his admiration for the extra-judicial executions of drug dealers in the Philippines.

The decline in drug industry fines is part of a larger tendency by the Trump Administration to scale back penalties against corporations in all industries. As I previously noted, the latest update to Violation Tracker through the end of Trump’s first 12 months shows a remarkable drop in penalties, especially for the very largest companies in the Fortune 100.

This can be seen as a form of stealth deregulation. Increasingly, Big Pharma and other industries benefit both from rolled-back rulemaking and from diminished financial consequences if they break the rules still on the books. It is truly a nirvana for rogue corporations.

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