Tuesday, May 17, 2011

Drug Companies: Accountability at Last?

It seems the US government is finally beginning to take significant action against drug companies that break the rules when marketing and distributing their products. In so doing they have irritated The Economist magazine and moved it to issue a caustic critique.

Let us first put matters in context. Drug companies have a unique role in society. Their products have the potential to do both tremendous good and tremendous harm. All drugs generate side effects and some individuals will suffer from having taken them. Who gets to decide when the benefits outweigh the harm? Society has decided it is more appropriate to have the government make that decision rather than the profit-driven company. When a drug company purposely ignores government regulations in order to sell more of their product they are acting as responsibly as a drunk driver. The difference is that when a drunk driver breaks the rules and kills somebody he/she could end up in jail. When a drug company breaks the rules and kills somebody they only have to give up a portion of their profit—assuming they get caught.

The Economist seems to view any attempt to hold management responsible for the actions of the company as a form of persecution. Their article tells the tale of Forest Laboratories and its CEO Howard Solomon.

Forest got caught breaking the rules and was fined.

“LAST year Howard Solomon, chief executive of Forest Laboratories, declared the end of an ordeal. After a long battle, the drug company agreed to settle charges of illegal marketing and distribution.”

In an encouraging move, the government decided to take additional action.

“But last month Forest got a surprise: a notice from America’s health department saying that it planned to bar Mr Solomon from doing business with federal health programmes such as Medicare. Unless he resigns, Forest would be barred too. As The Economist went to press Mr Solomon was planning a vigorous defence. Forest is burning with outrage. Other executives are shuddering.”

The article tries to claim that businesses are too complicated to allow guilt to be assessed to individuals. It subtitles the article: “The government seeks to sack an innocent boss.” They provide no evidence or argument why he should be assumed innocent other than that he is “only” the boss.

“For years government officials have struggled with a question: if a company does something wrong, who should be held accountable? This concern has become more urgent since the financial crisis, since so many financial firms did so much wrong in such complicated ways. But the question is particularly thorny for drug companies, which are often big, decentralised and vulnerable to lawsuits. Companies are used to being penalised—in 2009 the Justice Department wrung $3.7 billion in settlements from Eli Lilly and Pfizer for marketing drugs in improper ways. But the government is increasingly trying to punish individuals for the actions of their firms. It is a worrying shift.”

Rather than hiding behind the specious argument of complexity, it would seem that the guilt of the CEO should be obvious. A company is about to launch a new product in which they may have invested billions of dollars. Is it too complicated to have a few of their many lawyers review the marketing plan to see that it is consistent with regulations? Is it too complicated for a CEO to demand that all new products face a review of the intended procedures before they are released? That would cost almost nothing and take little time. Consider how much time, money, and effort go into planning the marketing campaign. When drug companies admit to $3.7 billion in guilt, their CEOs are either incompetent or guilty. My guess is that few would win an incompetence defense in front of a jury.

There is precedent for finding executives guilty.

“In 2007 prosecutors won guilty pleas from three serving and former executives of Purdue Pharma, a drug firm, over the misbranding of OxyContin, a painkiller. The men pleaded guilty to misdemeanour charges, though they said they were unaware of the misconduct that occurred on their watch.”

And the government is continuing to look for ways to respond in an effective manner.

“The Office of Inspector General (OIG) has long barred people convicted of certain offences from doing business with Medicare and Medicaid, along with doctors and nurses who lose their licences. But in October the OIG announced that it would increasingly bar executives in charge of firms that have been convicted of wrongdoing....”

The article tacitly admits that corporate misconduct takes place, yet it chooses to leave us with this curious warning.

“Mr Solomon’s punishment is intended to deter corporate misconduct. It may simply deter clever people from becoming drug executives.”

Perhaps putting some of these “clever” executives in the slammer for a few years would make room for honest and competent people to run these companies.

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