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 Big Pharma Penalties

Over the last twenty years, pharmaceutical drug manufacturers have paid more than $30 billion dollars in class action penalties enforced by state and federal prosecutors. A new report by the consumer advocacy organization called Public Citizen shines light on the massive fines that these multinational corporations have paid over the years in the United States. The organization asserts that these fines have been levied against such companies as Eli Lilly, GlaxoSmithKline, Johnson & Johnson and others. The fact that these companies have $30 billion to lose may give many consumers reason to pause.

The fines are related to illegal marketing and fraud. Some of this fraud may be directly related to some of the injuries, birth defects, suicides, and wrongful deaths that have been associated with certain pharmaceutical drugs over that last two decades.  Additionally, some settlements and judgments are associated with the overcharging of state run health plans (http://www.citizen.org/hrg2073).

Health care programs at the state and federal level—Medicare and Medicaid, for instance—spend trillions of dollars on pharmaceutical drugs on behalf of patients. This has garnered increased attention and oversight from investigators who seek to shrink tax payer burdens. The overcharges amount to billions of dollars in fraud. In an Associated Press article published recently, Dr. Sammy Almashat, a researcher with Public Citizen, is quoted as saying "It should come as no surprise that states facing Medicaid budget shortfalls are finally deciding to root out fraud that has likely cost their taxpayers billions of dollars over the years" (http://finance.yahoo.com/news/public-citizen-state-drug-fraud-140225268.html).

GlaxoSmithKline, Johnson & Johnson, and Abbott Laboratories have been most severely punished in the last several years. GlaxoSmithKline agreed to pay $3 billion in a settlement in July and did not explicitly admit to any wrong doing. Eli Lilly & Co. and Pfizer Inc. have also been penalized in excess of $1 billion recently. They also settled out of court and admitted no wrongdoing. The trend is probably not going to slow and drug manufacturers may not be the only targets for state prosecutors.

Arizona’s Attorney General Tom Horne announced that he is suing the nation’s top pharmaceutical drug wholesaler for artificially inflating costs to consumers on some of the most popular prescription drugs (http://www.businessweek.com/ap/2012-09-20/arizona-ag-files-lawsuit-against-drug-wholesaler). McKesson distributes drugs such as Valium, Celebrex, and Allegra among many others. The drugs are distributed to many retailers throughout the nation and Arizona including Albertsons grocery store, Costco, and Target.

The lawsuit accuses McKesson of raising the gap between the published average wholesale price and the actual acquisition cost. Those prices, the lawsuit asserts, were passed along to consumers and third-party payers. The Arizona Attorney General is seeking what could amount to staggering amounts of restitution to Arizona consumers as well as civil penalties of up to $10,000 for each violation of Arizona’s Consumer Fraud Act. The company settled with several other states recently for similar allegations. The settlement reached was for $151 million (http://www.foxbusiness.com/topics/business/companies/mckesson.htm). They also settled with the federal government for $187 million.

$187 and $151 million: if Arizona is successful, the company could pay millions more in fines for alleged Medicare fraud: this may seem like a lot of money to the average consumer. The $30 billion paid out by large pharmaceutical companies also sounds excessively punitive. However, these companies have armies of attorneys making sure that every allegation is deflected and they rarely admit wrongdoing. More importantly, the fines really are not all that significant. In a single quarter last year, McKesson reported $28.2 billion in revenue.  GlaxoSmithKline, last year, had revenue of $42 billion. Johnson & Johnson had $61 billion in revenue last year. Eli Lilly & Co. reported $23 billion in revue.  Pfizer had approximately $67 billion in revenue in 2011.

Despite controversy, recalls, and increased oversight, these companies continue to bloat. State and federal prosecutors and personal injury attorneys specializing in lawsuits against big pharmaceutical companies may be the only protection that the public has against these behemoths of the medical industry. For all the fines they pay, it seems that the promise of profit outweighs the cost of inevitable punishment. 

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