Public Citizen published a report that catalogues all major financial settlements and court judgments between pharmaceutical companies and federal and state governments from 1991 through 2015. The report found that drugmakers entered into 373 settlements totaling $35.7 billion in criminal and civil penalties, but that both the number and size of settlements decreased significantly in 2014 and 2015.
In September 2012, Public Citizen published an updated analysis of all major financial settlements and court judgments (hereafter referred to collectively as “settlements”) between pharmaceutical manufacturers and the federal and state governments from 1991 through July 18, 2012. At the time of the report’s publication, over $30 billion had been paid by the pharmaceutical industry to settle allegations of numerous violations, including illegal off-label marketing and the deliberate overcharging of taxpayer-funded health programs, such as Medicare and Medicaid.
The following study was undertaken to assess the level of settlement activity from the time period studied in the previous report through 2015, an additional 3½ years thereby providing collective data for the entire 25 years from 1991 through 2015.
Methodology from the 2012 report was replicated, the sole exception being that unlike the previous studies, this study includes federal and state settlements totaling less than $1 million. Therefore, the study includes all federal and state government settlements reached with pharmaceutical manufacturers from July 19, 2012, through 2015, but only settlements of at least $1 million for the period prior to July 19, 2012. In addition, the totals presented in this report for the period prior to July 19, 2012, are different from those listed in the previous report for several reasons, most notably the overturning on appeal of two previous state court judgments against Johnson & Johnson totaling $1.5 billion in fines. As in the prior report, single-state settlements were those in which only one state was a party to the final settlement, as gleaned from the information provided in the press release. All other state settlements were classified as multi-state.
From 1991 through 2015, a total of 373 settlements were reached between the federal and state governments and pharmaceutical manufacturers, for a total of $35.7 billion. Of these, 140 were federal settlements, for $31.9 billion, and 233 were state settlements, for $3.8 billion. Other key findings include the following:
- Financial penalties declined sharply since 2013. Just $2.4 billion in federal financial penalties were recovered in the most recent two-year period (2014-2015), less than one-third of the $8.7 billion in federal penalties in 2012-2013 and the lowest two-year total since 2004-2005. In contrast, the number of these federal settlements decreased only slightly, from 22 to 19, from 2012-2013 to 2014-2015. Thus, the average size of federal settlements declined from $395 million per settlement — $8.7 billion for the 22 settlements — in 2012-2013 to $126 million per settlement — $2.4 billion for 19 settlements — in 2014-2015, less than one-third of the average amount in the earlier interval.
- There were just 20 state settlements in the final two years of the study period (2014-2015), a nearly 80% drop from the 95 settlements in 2012-2013 and the lowest two-year total since 2006-2007. State financial penalties totaled just $424 million during these two most recent years — compared with $1.2 billion in 2012-2013 — a lower total than in any two-year period since 2007-2008.
- From 1991 through 2015, overcharging of government health insurance programs, mainly drug pricing fraud against state Medicaid programs, was the most common violation, while the unlawful promotion of drugs was the single violation that resulted in the largest financial penalties.
- Almost all of the decrease in the total number of settlements in 2014 and 2015 was attributable to the sharp decrease in the number of single-state settlements involving overcharging government health programs, from a combined 73 settlements in 2012 and 2013 to just five in 2014 and 2015, a 93% drop.
- The decline in total financial penalties in 2014 and 2015 was primarily due to a decrease in the size of federal settlements involving unlawful promotion, with federal financial penalties that could be attributed to unlawful promotion declining by 90% from nearly $2.8 billion in 2012-2013 to $263 million in 2014-2015. The combined total for these latter two years was lower than that for any single year since 2006. As was the case with overall federal financial penalties, this reflects a sharp decrease in the amount of the average penalty paid for unlawful promotion, since the number of federal unlawful promotion violations had declined only slightly, from 11 to eight.
- The most striking decrease in financial penalties involved criminal penalties (all of which, from 1991 through 2015, were federal). For 2012 and 2013 combined, criminal penalties totaled $2.7 billion, but by 2014-2015, the total had fallen to $44 million, a decrease of more than 98%.
- Qui tam (whistleblower) revelations, brought mostly under the False Claims Act, were responsible, at least in part, for 81 of 140 (58%) federal settlements, and $22.8 billion of $31.9 billion (71%) in federal penalties, from 1991 through 2015. By contrast, just 17 of 233 (7%) state settlements and $793 million of $3.8 billion (21%) in state financial penalties originated from qui tam actions. Of all state settlements originating from qui tam actions from 1991 through 2015, a single state, Texas, accounted for nine of 17 (53%) settlements and $409 million of $793 million (52%) in financial penalties.
- From 1991 through 2015, 29 states and the District of Columbia (hereafter considered a “state” for the purposes of this report) reached at least one single-state settlement with a pharmaceutical company. Hawaii recovered the most money as a proportion of Medicaid drug expenditures (15%), South Carolina recouped the most money per enforcement dollar spent ($12.25), Louisiana had the most single-state settlements (55), and Texas finalized, by far, the most whistleblower-initiated settlements (nine). Overall, 17 of the 30 states with at least one single-state settlement from 1991 through 2015 attained a return on investment of $1 or greater for every dollar spent on enforcement of all (both pharmaceutical- and non-pharmaceutical-related) Medicaid fraud.
- From 1991 through 2015, GlaxoSmithKline and Pfizer reached the most settlements (31 each) and paid the most in financial penalties — $7.9 billion and $3.9 billion, respectively —to the federal and state governments. Johnson & Johnson, Merck, Abbott, Eli Lilly, Teva, Schering-Plough, Novartis, and AstraZeneca also paid more than $1 billion in financial penalties. Thirty-one companies entered into repeat settlements with the federal government from 1991 through 2015, with Pfizer (11), GlaxoSmithKline, Novartis, Bristol-Myers Squibb (eight each), and Merck (seven) finalizing the most federal settlements.
The number and size of federal and state settlements against the pharmaceutical industry decreased significantly in 2014 and 2015. It remains to be seen whether this decline represents a longer-term trend. Financial penalties continued to pale in comparison to company profits, with the $35.7 billion in penalties from 1991 through 2015 amounting to only 5% of the $711 billion in net profits made by the 11 largest global drug companies during just 10 of those 25 years (2003-2012). To our knowledge, a parent company has never been excluded from participation in Medicare and Medicaid for illegal activities, which endanger the public health and deplete taxpayer-funded programs. Nor has almost any senior executive been given a jail sentence for leading companies engaged in these illegal activities. Much larger penalties and successful prosecutions of company executives that oversee systemic fraud, including jail sentences if appropriate, are necessary to deter future unlawful behavior. Otherwise, these illegal but profitable activities will continue to be part of companies’ business model.
*This summary has been updated since its original posting on March 31, 2016, with corrected totals for Merck. The previous version of the report lumped together all settlements involving either the American company Merck & Co. (aka Merck Sharp & Dohme) or the German company Merck KGaA under the single entity “Merck”. However, we subsequently learned that Merck & Co. and Merck KGaA are, in fact, two entirely separate parent companies. Therefore, the updated company totals present, separately, the totals for the two companies. The term “Merck” now includes only the settlements involving the American Merck & Co. (Merck Sharp & Dohme), with all settlements involving the German company listed under “Merck KGaA.”