Financial penalties imposed on large pharmaceutical firms for illegal activities
UNC Charlotte research shows price pharmaceutical firms pay for illegal practices
Some pharmaceutical companies have received criticism for engaging in illegal activities, such as providing kickbacks and bribes, knowingly shipping adulterated or contaminated drugs to pharmacies, and marketing drugs for unapproved uses. This study examined financial penalties for illegal activities among large pharmaceutical firms in relation to annual revenues.
We collected data on financial penalties for pharmaceutical firms listed on the Global 500 or Fortune 1000 lists using procedures similar to Almashat et al.1 Consistent with prior research,2 we analyzed all firms that met inclusion criteria and appeared on the list for 7 years or more. All instances of financial penalties from state and federal settlements between January 2003 and December 2016 were obtained from the US Department of Justice, the US Securities and Exchange Commission, the US Environmental Protection Agency, and states’ attorneys general. Each settlement included the penalty amount and described the scope, type, and duration of the associated illegal activity. We secured missing data through Freedom of Information Act requests. Financial penalties were attributed to the settlement year.
To adjust for inflation, we calculated the cumulative dollar value of each firm’s financial penalties for each year and applied the Bureau of Economic Analysis’ Gross Domestic Product Deflator to convert the cumulative amount to 2016 dollars. When firms merged with or were acquired by other firms during the study period, we attributed all penalty settlements, both before and after acquisition, to the firm that engaged in the illegal activity. We calculated the mean penalty amount by dividing the total dollar value of each company’s financial penalties by the total number of penalties levied during the study period. We calculated the total dollar value of each company’s financial penalties as a percentage of their total revenues during the study period using data from Compustat, Mergent Online, Edgar Direct, and annual reports filed with the Securities and Exchange Commission. We provided the mean duration of illegal activity for penalties settled during the study period. We used content analysis to classify each settlement into 1 or more types of illegal activity and summarized the frequency by firm and illegal activity type.
Among 26 firms in our sample, 22 (85%) had financial penalties for illegal activities. The combined dollar value of financial penalties totaled $33 billion for 2003 to 2016. Eleven firms with financial penalties exceeding $1 billion in inflation-adjusted dollars accounted for $28.8 billion (88%) of the total penalties (Table 1). The firms with the highest penalties as a percentage of revenues (ie, >1%) were Schering-Plough, GlaxoSmithKline, Allergan, and Wyeth; the number of penalties for these firms varied between 1 (Allergan) and 27 (GlaxoSmithKline). Four firms had financial penalties that totaled less than $80 million and no more than 2 penalty settlements (Actavis [Watson], Roche Group, Genzyme, and Perrigo). All but 1 firm (Perrigo) engaged in illegal activities associated with penalties for 4 or more years. An additional 4 firms received no financial penalties for illegal activities during this period. The most common types of illegal activity involving penalties (Table 2) were pricing violations, off-label marketing, and kickbacks. The firms with the greatest variety in the types of illegal activities involving penalties were GlaxoSmithKline, Bristol Myers Squibb, and Merck. Three firms (Actavis, Allergan, and Perrigo) had penalties limited to a single violation type.
Among the large pharmaceutical companies included in this study, 85% had evidence of financial penalties for illegal activities. Given the scope and nature of the illegal activities involving financial penalties, physicians and regulators should exhibit vigilance over the activities of large pharmaceutical firms. Four firms were not found to have penalties for illegal activities during the sample period. This may indicate an ability for illegal activity to be undetected, although these firms may instead have effective ethics and compliance programs.3,4
Limitations of the study include focus on the largest firms, exclusion of class-action settlements and penalties by non-US governments, and the possibility that some settlements were missed. Also, only settlements from a limited time period were examined; whether these data reflect current activities of pharmaceutical companies or whether financial penalties for illegal activities have increased or decreased more recently could not be determined. Other industries also engage in illegal activities, but a comparative analysis is beyond the scope of this study.