The Department of Health and Human Services is getting aggressive at rooting out fraud in Big Pharma, Fortune reports.
From now on, individual executives risk being ejected from their jobs — and perhaps even barred from the industry — for fraud their companies commit, even if they did not participate or even know about the crimes.
All that’s required for the government to flex this remarkably broad authority — embedded in the Responsible Corporate Officers Doctrine — is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.
My question: Why isn’t the SEC getting in on this action?
The drug industry has agreed to pay massive fines to settle government charges of fraud. AstraZeneca just recently agreed to pay more than half a billion dollars for marketing a powerful and problematic anti-psychotic drug for off-label uses. That’s clinical jargon. Here’s how Time described what AstraZeneca did:
Seroquel had FDA approval for use in short-term treatment of schizophrenia and acute bipolar 1, but according to Justice’s complaint the company aggressively marketed the drug “as a long-term cure-all for a broad spectrum of psychiatric maladies, including … aggression and agitation in children” even though clinical studies have sometimes shown “serious and debilitating side effects,” particularly among the elderly and children. Seroquel is typically prescribed by psychiatrists, but was being marketed to general medical practitioners, including staff at nursing homes, veterans hospitals and prisons, and to neighborhood pediatricians, making patients “guinea pigs in an unsupervised drug test,” according to a prosecutor.
AstraZeneca is hardly the only bad actor here. Eli Lilly paid $1.4 billion for similar off-label marketing of its antipsychotic drug. Lilly pleaded guilty to a criminal charge as part of settlement.
And Pfizer paid $2.3 billion for off-label marketing a painkiller, and also copped a plea. Remember from the first quote above that it can only ban execs if the fraud “resulted in a criminal conviction or plea.”
By one measure, the financial crisis began in earnest three years ago this month with the collapse of two Bear Stearns hedge funds, and there haven’t been criminal convictions yet. The SEC has sued Goldman Sachs (an Audit funder) for fraud but hasn’t pursued any of its officers, much less the company itself.
So even if the SEC imitated HHS’s tough stance, it would be as much symbolism as anything. But, of course, it isn’t even doing that. Why not?Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.