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Is It Enough?

For a long time now, judges, prosecutors, and False Claims Act whistleblower attorneys have been asking if these massive pharmaceutical settlements are enough to deter the bad conduct or are they just a cost of doing business?

In the past several years, government prosecutors have blown through the billion dollar mark on settlement recoveries like a plane still accelerating and climbing towards cruising altitude. First Tenet Healthcare ($1.279 billion), then Eli Lilly ($1.314 billion), then Columbia HCA ($1.457 billion), then Abbott Labs ($1.5 billion), then Pfizer ($2.3 billion), and now GlaxoSmithKline ($3 billion), upwards and upwards we go to each new historic high. Why, you might wonder, are the fraud settlements getting bigger and bigger? Why, you might ask, aren't these precedents slowing down the bad behavior?

You would not be alone in asking these questions. As he accepted the jointly recommended plea agreement in the Pfizer settlement (in which the company pled to misdemeanor with a $ 1 billion fine attached), Judge Woodlock here in Boston asked some pointed questions of prosecutors [see transcript Sentencing Hearing (10-16-09).pdf]. With companies ready to shed their skin "like certain animals," sacrificing a subsidiary to the government with the corporate parent going on merrily about its way, are we actually getting anywhere in the fight against fraud? And if this company committed a billion dollar crime, how could it have engaged in conduct so massively fraudulent without any individuals being held accountable in a criminal court?

More recently, one law professor, tallying up the string of settlements from the last few years asked if Glaxo's $3 billion penalty was "sufficient" or was it just a cost of doing business?

Two things seem clear from the last ten years of health care fraud and False Claims Act prosecutions. First, industry has taken notice. More and more companies have deep compliance departments and are trying seriously to avoid becoming the next statistic on the DOJ website, and to avoid supervision and reporting requirements from the HHS/OIG.  Second, and somewhat in contradiction of the first point, whistleblower claims keep coming out of the healthcare sector in record numbers, and the resulting settlements keep breaking records.

How to reconcile these two thoughts? My view is that most of these companies are huge institutions, in which responsibility is diffused throughout the organization, and control of what is going on in the field becomes difficult if not impossible. Driven to increase shareholder value and maximize profits, public companies have a difficult time resisting ways to make easy money. Government health insurance programs, which pay out roughly one trillion dollars ($1,000,000,000,000) per year on an honor system, are easy targets. So even companies serious about compliance have a difficult time controlling the profit-maximizing impulses of their employees (at all levels of the companies). As long as they keep compensating salespeople based on volume of product sold, the cases will keep coming.

So I say, no, it's not enough. These big civil settlements are great accomplishments and they get people's attention. But until the decision-makers at the top of the companies start wondering whether their livelihoods are at stake or even their liberty at stake, this plane will just keep on climbing.

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