The Deadly Consequences of Weak Regulation

Unfortunately, it seems to take a public health crisis for the United States to remember the importance of diligently regulating companies such as drugmakers and food processors. And it is only during such crises that people realize that, despite the whines of corporate-friendly politicians, our problem is that such businesses are regulated too little rather than too much.

This scenario is being played out yet again in the fungal meningitis outbreak that has stricken more than 240 people and killed at least 20 of them around the country. It was only once the bodies began piling up that it became widely known that there has been confusion as to whether state or federal agencies should be overseeing operations such as the New England Compounding Center (NECC), which has been blamed for shipping tens of thousands of contaminated syringes with steroids used by patients with severe pain.

It turns out that the federal Food and Drug Administration had been keeping an eye on NECC, and in December 2006 the agency sent it and several similar companies a warning letter about distributing topical anesthetic creams without federal approval. An FDA press release about the warnings noted that exposure to high concentrations of local anesthetics can cause grave reactions and had in fact been linked to two deaths of users of the creams produced by one of the five firms. The NECC letter also mentioned concerns about the company’s practices related to the repackaging of Avastin, an injectable drug for treating colorectal cancer.

It’s not clear that the FDA letters had any impact. The compounding pharmacies paid little attention, given that a federal judge had previously issued a ruling calling into question the authority of the agency to regulate their business. Supposedly, state pharmacy boards are taking care of the matter.  One gets an idea of how serious that is from a Boston Globe story revealing that one of the members of the Massachusetts board is an executive with Ameridose, a compounding pharmacy also owned by NECC principals Barry Cadden and Gregory Conigliaro.

What makes companies such as NECC and Ameridose, both of which have suspended operations, even more dangerous is that they are privately held and thus have to disclose a lot less information about their operations. What they do reveal tends to be self-serving accounts of their supposed commitment to corporate social responsibility. The NECC website now consists solely of its “voluntary” recall, but the full Ameridose site is still up and has a less-than-hard-hitting news section.

There are numerous press releases about the company’s “outstanding” sustainability program, especially its recycling of cardboard and its installation of an ultrasonic humidification system. There are also releases about the company’s participation in a holiday food drive and its sponsorship of several industry conferences.

These are no doubt worthwhile initiatives, but the public might have also wanted to know how Ameridose was dealing with issues such as a 2008 FDA inspection that found that the company had been shipping products before it receive the results of sterility tests. That year Ameridose also had to recall some of its Fentanyl product.

The problems at Ameridose apparently went much deeper. According to reporting by the New York Times, employees at the firm expressed concern to management about serious safety and quality control issues but were rebuffed. One worker was quoted as saying: “The emphasis was always on speed, not on doing the job right.”

NECC and Ameridose are the kinds of companies lionized by Republican politicians preoccupied with defending “job creators” against government incursions in their business. It thus comes as no surprise that a search of the Open Secrets database shows that Conigliaro has contributed four times to Scott Brown’s Senate race in Massachusetts and has given $2,500 to Mitt Romney.

These firms are also among those government-dependent companies not singled out by Romney for mooching. Aside from the portion of their business covered by programs such as Medicare and Medicaid, the USA Spending database shows that Ameridose has received more than $800,000 in contracts from the federal government. In June, the U.S. Army signed an exclusive, five-year purchasing agreement with the firm to supply specialized compounded products for the pediatric intensive care unit at the Army’s Tripler Medical Center in Honolulu.

So the next time a politician complains about excessive regulation, we should keep in mind the risk to that pediatric intensive care unit and the actual harm caused to the meningitis victims.

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New in CORPORATE RAP SHEETS: Dossiers on the no-longer-merging military contracting and aerospace giants BAE Systems and EADS.

Corporate Greed is the Real Threat to Medicare

Now that fiscal hatchet man Paul Ryan is on the Republican ticket, the presidential race has turned into a free-for-all over the future of Medicare.

Recognizing the unpopularity of their goal of slashing entitlement spending, Ryan and Romney are instead straining credulity by painting themselves as defenders of Medicare against $700 billion in cuts scheduled under the Affordable Care Act.

This, of course, is a reprise of the tactic long used by opponents of healthcare reform of deliberately conflating Obamacare’s negotiated cuts in payments to healthcare providers with cuts in actual services to seniors.

Such obfuscation can have some success because most people continue to view Medicare solely as a government social program, when it is also a massive system of contracts that transfer more than $500 billion in taxpayer funds each year to the private sector. Medicare took the profit out of providing health insurance to seniors but it left untouched the profit motive in the delivery of their medical services. In fact, Medicare’s billions have played a central role in building the commercial healthcare industry into the leviathan it is today.

Not content with making a reasonable amount of money from serving this huge market legitimately, providers regularly try to bilk the system for more than what they are entitled to. This is not just a matter of the proverbial Medicare mills in which individual physicians or small operations charge for services provided to imaginary patients or else overbill when treating real ones.

Some of the biggest instances of Medicare fraud have been perpetuated by Fortune 500 companies such as for-profit hospital operators, medical device manufacturers and pharmaceutical producers.

Let’s start with the drugmakers, since they have been at the center of several recent cases involving the illegal marketing of their pills for unapproved purposes, which among other things results in more high-priced medications getting prescribed for Medicare patients, thus inflating system costs. A few weeks ago, Glaxo SmithKline agreed to pay $3 billion to resolve federal criminal and civil charges relating to the improper marketing of its best-selling anti-depressants.

In May, Abbott Laboratories agreed to pay $1.5 billion to settle similar charges relating to the off-label marketing of its drug Depakote. Although Depakote was approved only for treating seizures, Abbott created a special sales force to pressure physicians to use it for controlling agitation and aggression in elderly dementia patients. This was both a safety risk and an added financial burden for Medicare and Medicaid. Illegal marketing charges had previously been settled with companies such as Novartis, AstraZeneca, Pfizer and Eli Lilly—in other words, pretty much the whole industry.

Medical device makers also contribute to escalating Medicare costs by pressing doctors to use their expensive products in place of cheaper alternatives or perhaps when they are not really medically necessary. Last December, Medtronic paid $23.5 million to resolve federal charges that it paid illegal kickbacks to physicians to induce them to implant the company’s pacemakers and defibrillators. Several months earlier, Guidant paid $9 million to settle federal charges of having inflated the cost of replacement pacemakers and defibrillators for Medicare and Medicaid patients.

And then we have the for-profit hospitals. A decade ago, HCA, one of the pioneers of the industry and still its biggest player, paid a total of $1.7 billion in fines in connection with charges that it defrauded Medicare and other federal health programs through a variety of overbilling schemes. Chief executive Rick Scott—now the Republican governor of Florida—was ousted but managed to avoid prosecution.

It now looks HCA is at it again. The New York Times just published a front-page exposé of how the company—now controlled by a group of private equity firms including Bain Capital—is making fat profits through “aggressive” billing of Medicare as well as private insurers. The Times reported that HCA’s tactics are now “under scrutiny” by the Justice Department.

The debate over Medicare’s supposedly out-of-control costs is surprisingly devoid of discussion of how much of the problem is the result of aggressive billing or outright fraud by the likes of HCA, the device makers and the pharmaceutical producers. Seniors cannot be expected to suffer cuts in their benefits as long as the giant corporate healthcare providers continue to gouge the system.

Will Big Pharma Remain Above the Law?

The recent announcement that a corporation agreed to pay $1.6 billion to settle regulatory violations would normally be considered significant news, but because the company involved was a drugmaker there was not much of a stir. That’s because Abbott Laboratories is only the latest in a series of pharmaceutical producers to pay nine- and ten-figure amounts to settle charges that they engaged in illegal marketing practices.

Abbott’s deal with federal and state prosecutors involves Depakote, which was approved by the Food and Drug Administration to treat seizures but which Abbott was charged with promoting for unauthorized uses such as schizophrenia and for controlling agitation in elderly dementia patients. The company admitted that for eight years it maintained a specialized sales force to market Depakote to nursing homes for the latter unauthorized use. In other words, it systematically violated FDA rules and encouraged doctors and nursing homes to use the drug in potentially unsafe ways.

Abbott follows in the footsteps of other industry violators:

  • In November 2011 GlaxoSmithKline agreed to pay $3 billion to settle various federal investigations, including one involving the illegal marketing of its diabetes drug Avandia.
  • In September 2010 Novartis agreed to pay $422 million to settle charges that it had illegally marketed its anti-seizure medication Trileptal and five other drugs.
  • In April 2010 AstraZeneca agreed to pay $520 million to settle charges relating to the marketing of its schizophrenia drug Seroquel.
  • In September 2009 Pfizer agreed to pay $2.3 billion to settle charges stemming from the illegal promotion of its anti-inflammatory drug Bextra prior to its being taken off the market entirely because of concerns that it was unsafe for any use.
  • In January 2009 Eli Lilly agreed the pay $1.4 billion—then the largest individual corporate criminal fine in the history of the U.S. Justice Department—for illegal marketing of its anti-psychotic drug Zyprexa.

The wave of off-label marketing settlements began in 2004, when Pfizer agreed to pay $430 million to resolve criminal and civil charges brought against Warner-Lambert (which Pfizer had acquired four years earlier) for providing financial inducements and otherwise encouraging doctors to prescribe its epilepsy drug Neurontin for other unapproved uses.

Soon just about every drugmaker of significance ended up reaching one of these agreements with prosecutors and shelled out what appeared to be hefty penalties. In fact, the amounts were modest in comparison to the potential revenue the companies could rake in by selling the drugs for uses far beyond what the FDA review process had deemed safe. A 2009 investigation by David Evans of Bloomberg noted that the $2.3 billion penalty Pfizer paid in connection with Bextra was only 14 percent of the $16.8 billion in revenue it had enjoyed from that drug over the previous seven years.

The company’s 2004 settlement should have been a deterrent against further off-label marketing, but, according to Bloomberg, Pfizer went right on doing it. Seeking maximum sales, regardless of restrictions set by the FDA, was an ingrained part of the company’s modus operandi. When the 2009 settlement was announced, John Kopchinski, a former Pfizer sales rep turned whistleblower, was quoted as saying: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Compared to other forms of corporate misconduct, such as securities violations, the drug companies are much more likely to have to admit to criminal violations in the off-label marketing cases. And the penalties are far larger than those imposed for most environmental and labor violations.

Yet these seemingly harsher enforcement practices appear not to have been very effective in putting an end to the illegal activity. In fact, the willingness of the drug industry to flout the drug safety laws raises serious questions about the effectiveness of FDA regulations and the federal criminal justice system in general. If a group of companies know that they can repeatedly break the rules and face consequences that fall far short of the potential gains from the illegal behavior, enforcement has little meaning.

What makes the situation even more outrageous is that off-label market is just one of numerous ways that the drug industry regularly violates the law—whether by defrauding federal programs such as Medicare or by covering up safety risks related to the approved uses of certain drugs.

The one thing that makes drug industry executives a bit nervous is that federal prosecutors have begun to show interest in reviving what is known as the responsible corporate officer doctrine, a provision of U.S. food and drug laws that could be used to hold executives personally and criminally responsible for violations. So far, the doctrine has been applied to only a few small fish. But if Big Pharma CEOs start appearing in perp walks, the industry may finally realize it is not above the law.