Bribes Lead to Black Eyes

Though the bribe be small, yet the fault is great

By: Ed Silverman

Contributing Editor

Once again, the pharmaceutical industry is absorbing a spate of negative publicity about its practices that threaten to undermine its carefully honed image of delivering life-saving medicines. After the series of enormous fines for illegal marketing, the latest trouble involves paying old-fashioned bribes in other countries. And the practice has been so widespread that federal prosecutors have openly signaled for more than two years that investigations and charges would be forthcoming.

The parade has begun. The latest infraction to come to light involved Pfizer. In a widely reported announcement, the U.S. Securities and Exchange Commission (SEC) charged the big drugmaker with violating the Foreign Corrupt Practices Act (FCPA) after finding that various subsidiaries bribed doctors and other healthcare professionals employed by foreign governments in order to win business. The FCPA forbids U.S. companies from bribing foreign government officials.

For its offenses, Pfizer agreed to pay a total of $60 million, a sum that includes infractions involving Wyeth, which Pfizer bought three years ago. Of the fines, $15 million was also paid to cover what was called a parallel action, according to the U.S. Department of Justice. In an effort to minimize the pain, Pfizer noted that the bad behavior was actually disclosed voluntarily to the feds, a move that is encouraged in order to avoid stiffer penalties.

The SEC alleged that Pfizer employees and contractors in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia and Serbia bribed foreign officials to obtain regulatory and formulary approvals, boost sales and increase prescriptions. And they tried to conceal the bribes by improperly recording payments in accounting records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences and advertising.

For instance, in China, Pfizer employees invited high-prescribing doctors in the Chinese government to what the SEC called “club-like meetings” that included recreational and entertainment activities to reward past product sales or prescriptions. The Pfizer China unit also created various “point programs” in which government doctors could accumulate points based on the number of Pfizer prescriptions written. The points were redeemed for medical books, cell phones, reading glasses and even tea sets. This was the Pfizer version of a frequent flyer program, in other words.

The same sort of funny business took place in Croatia, where Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in government healthcare institutions, according to the SEC. Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel or free products.

Pfizer is not alone, though. Just days earlier, Teva Pharmaceuticals received a subpoena and Bristol-Myers Squibb also received a subpoena a few months earlier. And Johnson & Johnson paid a $70 million fine last year for bribing public doctors in several European countries — and paying kickbacks to Iraq — to illegally obtain business. Specifically, various J&J units paid bribes to public doctors in Greece who chose J&J surgical implants, as well as public doctors and hospital administrators in Poland who awarded contracts to J&J, and public doctors in Romania to prescribe J&J meds.

More subpoenas and fines are sure to come. After a while, the list of such infractions and huge sums may, in fact, become a regular occurrence. At some point, foreign bribes will be seen as just another cost of doing business that the pharma industry embraced — until it got caught. Such an impression, of course, would not be a good thing, but would largely mirror the outcome of the many off-label settlements that have involved nearly every large drugmaker.

Of course, the ongoing hunt for infractions has been a boon for law firms that advise the pharma industry. Naturally, drugmakers are being cautioned to familiarize themselves with the FCPA, study the regulatory environment in other countries and double down on making sure that agents, contractors and whoever else is dubbed an official representative understands exactly what is legal and what is not. With so many jurisdictions, though, the possibilities for getting into trouble can be endless.

In fact, other countries are making noise about getting tougher on corruption themselves. The Brazilian congress recently considered a bill that would strengthen penalties for bribes. And China recently threatened to blacklist unsavory capsule makers. Such moves, however symbolic, are meant to be seen as a way to send signals inside and outside their own borders, especially as the global pharmaceutical industry increasingly does more and more business in these emerging markets.

Ultimately, though, it is up to the multi-national drugmakers to halt such practices. The special interest shown by the feds is being taken seriously — Pfizer, as noted, made a point of disclosing the blunders. But the threat of prosecution, unfortunately, is seen as just another indication that the pharma industry was willing to engage in illegal conduct — in this case, doling out bribes — in order to build business.

In one respect, such episodes are hardly surprising. For one thing, the numerous employees at the large drugmakers are under tremendous pressure to make their numbers and if a bribe here and there is going to make the difference . . . well, human beings are human, after all. But preventing widespread corruption that can lead to unhealthy outcomes for individuals and society as a whole is a reason that we have laws. In other words, there really are no excuses.

Ironically, the move by the feds to enforce the FCPA generated some pushback. Last fall, the U.S. Chamber of Commerce and attorneys for some corporations claimed to have anecdotal evidence that legal confusion over the law had created a chilling effect, according to an article in The Wall Street Journal, which noted the issue was dampening overseas business interests and even prompted some companies to claim they walked away from deals that might trigger probes.

Specifically, the Chamber sought to clarify whether employees of state-owned companies qualify, while the feds have maintained all along that every employee in a state-run health-care system could be considered a foreign official. Obviously, this is an important point, because so many more cases of bribes could be made, especially in countries such as China, where many doctors, for instance, work for government institutions.

Such efforts, however, underscore the tin ear that industry — and obviously, not just the pharmaceutical industry — has when it comes to the perception such behavior creates. The bottom-line results may favor shareholders, but there is also a price to be paid. Drugmakers are in for another round of searing publicity that will further undermine the message that they exist to do good. Bribery will soon appear in the same breath as off-label marketing, even if the latter’s fines dwarf those of the former.

There is, however, a related issue here and that is the amount of the fines and the extent to which individuals are held accountable. For the most part there are some parallels to off-label marketing cases. Yes, the internal probes are time consuming, distract some managers and can derail people’s careers. Five years ago, in a separate probe, the worldwide chairman of J&J medical devices and diagnostics retired after a voluntary disclosure of foreign bribes.

Just the same, the fines paid by Pfizer and J&J are small compared to the scope and duration of the illegal activity and the additional revenue these practices likely generated. Of course, there is a grand bargain here; the feds are offering to go a little easier on companies that voluntarily disclose bribery. Basically, the deal is that a drugmaker will have to adhere to compliance procedures and risk additional penalties for future violations.

But will any of this erase bad behavior? Most likely, there will always be some shenanigans, especially as multi-national drugmakers push further into countries that are becoming more important pieces of their overall business, but bribing doctors, whether they are employed by governments or not, is dangerous. Pushing medications that may not be the best choice for patients is hardly good for anyone. Unfortunately, too many people need reminders.


Ed Silverman is a prize-winning journalist who has covered the pharmaceutical industry for The Star-Ledger of New Jersey, one of the nation’s largest daily newspapers, for more than 12 years. Prior to joining The Star-Ledger, Ed spent six years at New York Newsday and previously worked at Investor’s Business Daily. Ed blogs about the drug industry at Pharmalot, at www.pharmalot.com. He can be reached at ed.silverman@comcast.net.

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