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 2017. The report found that drugmakers entered into 412 settlements totaling $38.6 billion in criminal and civil penalties, but that the number and size of federal and state settlements against the pharmaceutical industry remained low in 2016 and 2017, with federal criminal penalties nearly disappearing.
Public Citizen has published three previous reports — in 2010, 2012, and 2016 — documenting the number and size of criminal and civil settlements and court judgments reached between the federal and state governments and pharmaceutical manufacturers. The 2016 report, which included all settlements from 1991 through 2015, revealed that the pace of settlement activity had decreased considerably in the then-most-recent two-year period. The current report analyzes settlements announced in 2016 and 2017, thereby providing collective data for the 27 years from 1991 through 2017.
Methodology was identical to that employed for the 2016 report. Note that the current report and the 2016 report included all settlements, regardless of the magnitude of the financial penalty. However, for the time period prior to July 19, 2012, only settlements of $1 million or greater were included. We changed our methodology beginning with the 2016 report to include settlements of less than $1 million primarily to ensure that totals for smaller states (which are more likely to have smaller settlements) were not underrepresented.
From 1991 through 2017, a total of 412 settlements were reached between the federal and state governments and pharmaceutical manufacturers, for a total of $38.6 billion. For 2016 and 2017, 38 settlements for a total of $2.9 billion occurred. These totals are comparable to the number of settlements (39) and overall financial penalties ($2.9 billion) in the previous two-year period (2014-2015). Total settlements in each of these two-year intervals were significantly lower than the 117 settlements totaling $9.8 billion in 2012-2013. Other key findings include the following:
- In 2016 and 2017, 29 federal settlements for a total of $2.8 billion occurred. These totals are somewhat higher than the previous two-year (2014-2015) totals of 19 settlements for $2.4 billion. However, both financial-penalty totals were significantly lower than the $8.7 billion total for the 22 federal settlements in 2012-2013. The average financial penalty in 2016-2017 ($97 million per federal settlement) and in 2014-2015 ($128 million per federal settlement) were both markedly lower than the $394 million per federal settlement in 2012-2013. Thus, the average penalty per settlement in 2016-2017 decreased by 75% from the average penalty in 2012-2013.
- The continued low levels of financial penalties in 2016-2017 were primarily due to a continued decrease in financial penalties (almost all federal) from settlements involving unlawful promotion of prescription drugs. Such penalties have declined drastically, by 94%, since their peak in 2012-2013 – from $8.7 billion then to just $527 million in 2016-2017. This is the lowest two-year total since 2003-2004.
- Another striking finding was a dramatic decrease in criminal penalties (which have all been federal since 1991). In 2012-2013, criminal penalties totaled $2.7 billion, but by 2016-2017, the total had fallen to $317 million, an 88% decrease.
- In 2016 and 2017, there were just 9 state settlements for a total of $82 million, the lowest two-year total for both the number of settlements and the amount of financial penalties since 2004-2005.
- From 1991 through 2017, overcharging of government health programs (mainly drug pricing fraud against state Medicaid programs) was the most common violation, but the number of settlements involving this violation has decreased dramatically in recent years, with just three federal or state settlements involving overcharging of government health programs in 2016-2017 and eight settlements in 2014-2015, compared with 78 such settlements in 2012-2013.
- Qui tam (whistleblower) revelations, brought mostly under the False Claims Act, were responsible, at least in part, for 92 of 170 (54%) federal settlements, and $24.7 billion of $34.8 billion (71%) in federal penalties, from 1991 through 2017. By contrast, from 1991 through 2017, a much lower proportion of state settlements (17 of 242; 7%) and state financial penalties ($791 million of $3.9 billion; 20%) originated from qui tam actions.
- From 1991 through 2017, 31 states reached at least one single-state settlement with a pharmaceutical company. Hawaii recovered the most money as a proportion (15%) of Medicaid drug expenditures, Alabama recouped the most money per enforcement dollar spent ($10.02), and Louisiana had the most single-state settlements (55). During these 27 years, 16 of the 31 states with at least one single-state settlement have attained a return on investment of $1 or greater per enforcement dollar spent, meaning they recouped enough money through financial penalties from these pharmaceutical settlements alone to offset their entire (pharmaceutical and non-pharmaceutical) Medicaid fraud enforcement budgets from FY 2006 to FY 2017.
- From 1991 through 2017, GlaxoSmithKline and Pfizer paid more in financial penalties — $7.9 billion and $4.7 billion, respectively — and reached more settlements (32 and 34, respectively) with the federal and state governments than any other companies. Johnson & Johnson, Teva, Merck, Abbott, Eli Lilly, Schering-Plough, Novartis, Mylan, and AstraZeneca were the other companies that paid more than $1 billion in financial penalties from 1991 through 2017, with Teva and Mylan having joined the $1 billion list over the past two years. Thirty-seven companies have entered into multiple settlements with the federal government from 1991 through 2017, with Pfizer (14), GlaxoSmithKline (9), Novartis (9), Bristol-Myers Squibb (8), Teva (7), and Merck (7) finalizing the most federal settlements.
The number and size of federal and state settlements against the pharmaceutical industry remained low in 2016 and 2017, with federal criminal penalties nearly disappearing. Financial penalties continued to pale in comparison to company profits, with the $38.6 billion in penalties from 1991 through 2017 amounting to only 5% of the $711 billion in net profits made by the 11 largest global drug companies during just 10 of those 27 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. Criminal prosecutions of executives leading companies engaged in these illegal activities have been extremely rare. 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.