November 17, 2020 Denis G. Arnold, PhD1; Oscar Jerome Stewart, PhD2; Tammy Beck, PhD3
Author Affiliations Article Information JAMA. 2020;324(19):1995-1997.
doi:10.1001/jama.2020.18740
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.
Methods
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.
Results
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.
Discussion
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.
Section Editor: Jody
W. Zylke, MD, Deputy Editor.
Article Information
Corresponding Author: Denis
G. Arnold, PhD, Belk College of Business, University of North Carolina at
Charlotte, 9201 University City Blvd, Charlotte, NC 28223 (denisarnold@uncc.edu).
Accepted for Publication: September
4, 2020.
Author Contributions: Drs
Stewart and Beck had full access to all of the data in the study and take
responsibility for the integrity of the data and the accuracy of the data
analysis.
Concept and design: All
authors.
Acquisition, analysis, or
interpretation of data: All authors.
Drafting of the
manuscript: All authors.
Critical revision of the
manuscript for important intellectual content: Arnold,
Stewart.
Statistical analysis: Stewart,
Beck.
Obtained funding: Arnold.
Administrative,
technical, or material support: Arnold.
Supervision: Arnold.
Conflict of Interest
Disclosures: None reported.
Funding/Support: Funded
by the Surtman Foundation and the Belk College of Business, University of North
Carolina at Charlotte.
Role of the
Funders/Sponsor: The funders had no role in the design and conduct of the
study; collection, management, analysis, and interpretation of the data;
preparation, review, or approval of the manuscript; and decision to submit the
manuscript for publication.
Disclaimer: The
views expressed in this article are those of the authors and not an official
position of the funders or of their affiliated institutions.
Additional Contributions: Paid
research assistance was provided by Jane Thomas, PhD, Purdue University
Northwest, and Kurtis Charling, MBA, and Stephanie Duennerman, MBA, University
of Nebraska, Lincoln.
References
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S,
Preston C, Waterman T, Wolfe S. Rapidly Increasing
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AA, Park JH, Lee HU. Top management team
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doi:10.2307/20159538Google Scholar
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doi:10.2307/256975Google Scholar
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HJ. Organizational ethics in
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