Gayla Bacus
SLCC: HLTH-1050-048
Life, Society and Drugs
Instructor: Paul Roberts
The Criminal Side of the Legal Drug Industry
Drugs, bribery, corruption, foreign officials, junkets to Bali, penthouse suites, tax evasion... Sound like a new blockbuster summer movie? No, welcome to the legal drug trade in America. One hundred years ago the drug industry (patent medicine) was plagued with unethical practices. Medications were fraudulent in their claims and even harmful. No one today would expect the same kind of treatment, but today's pharmaceutical practices are just as damaging as they were back then. Today's criminal investigations are largely centered on bribery in the medical industry. Other questionable practices of drug companies operating overseas are also making the news. Extortion, bribery and embezzlement are common medical supply chain practicesin many countries. Often, these practices are so entrenched that people are afraid of retaliation if they were to come forward and report illegal activities. Counterfeit drugs are affecting the healthcare of millions of people around the globe. All of these unethical practices are driving up the cost of healthcare to astronomical prices. The pharmaceutical industry is in crisis and will very likely be the focus of legal investigations for years to come.
Over the course of history, pharmaceuticals have been big business. Individuals would create their own concoctions and hawk them at the county fair and public events. As medications became mass produced, they were sold through mail order catalogs, such as Sears & Roebuck. Policing the safety and effectiveness of medications was unheard of until the 1930's. The government became increasingly involved to the point where checks and balances were put in place (through the FDA) to regulate the development, administration, and safety of prescription drugs. In theory, this sounds like a great plan. In reality, there are billions of dollars at stake, and huge incentives for people to circumvent the process. In 2006, the World Health Organization began an investigation into the corrupt practices of the pharmaceutical industry. In 2010, they issued a fact sheet outlining some of the unethical business practices. These practices included: “bribery, falsification of evidence, [and] mismanagement of conflicts of interest.” (Gutierrez). The results of these activities can divert medicines away from the areas that need them most, as well as resulting in substandard medications. This may mean the difference of life and death for some patients. From an economic perspective, 89% of expenditures for medications in Third World countries is lost due to corruption (approximately $160 billion). In First World countries, the figure is $12-23 billion, for a worldwide total of approximately $190 billion (“Medicines: Corruption and Pharmaceuticals”). This drives up the cost of medicine past the point where many people can afford them and limits the number of people who have access to essential medicines. Just think how much the world would benefit if another $190 billion were available to help people in need.
With billions of dollars at stake, is it any wonder that the industry is a hotbed of corruption? As with any unethical business dealings, the first strike against them is usually precipitated by an examination of their financial records. In 2006, GlaxoSmithKline paid out $3.4 billion in settlement for the largest tax dispute in IRS history (“Pharma Corrupt Practices”). The case involved transfer pricing, a common practice in the pharmaceutical industry. A company will use the value of a drug in Guatemala, for example, to estimate the value of their inventory in the U.S. so that they will pay a lower amount of taxes. Bristol-Meyers also paid out $800 million in a tax settlement to the IRS for unethical accounting practices the same year (“Pharma Corrupt Practices”). These cases are very clear-cut when they involve criminal accounting practices and tax evasion. Things aren't so clear when the companies are bending the rules instead of breaking them.
In order for a drug to obtain FDA approval and be assigned a patent, it must go through a series of clinical trials. What if 152 trials are conducted and 150 times the drug fails? Can the drug company use the positive results from the minority 2 trials to gain approval? Yes, the FDA has evidence of drugs that have gained approval while failing the majority of the drug trials (“Pharma Corrupt Practices”). Is it any wonder that each year an estimated 1.5 million people suffer adverse reactions to their prescriptions that require them to be hospitalized? Or that 51% of the drugs that are approved by the FDA have serious side effects that are not detected until after they are allowed on the market (“Pharma Corrupt Practices”)? Not only are the drug companies using minority data as evidence of drug efficacy, they are also relying on drug trials in foreign countries in which the officials performing the trials are also the officials that make the drug acceptance decisions for their healthcare systems. In many cases, these officials may be bribed to put medicines on an “essential medicines” list when they are actually non-essential, substantially increasing the sales of that drug (Adams). Over 80% of FDA approved drugs relied on clinical trials from foreign countries. Evidence of bribery of foreign medical officials is currently at the forefront of investigations into pharmaceutical business practices (Kirchgaessner). China executed their top FDA official, Zheng Xiaoyu, in 2007 for accepting over $800,000 in bribes to approve unsafe drugs which resulted in the deaths of over 100 people (Adams). In our country, we seem to still be a long way from holding anyone accountable.
In the U.S., the corruption is usually in the form of bribes between the pharmaceutical company and doctors. It is common practice for companies to send doctors on ultra-luxurious vacations or “training” seminars in places like Bali or Monaco in order to listen to a couple of hours of information on new prescription medications. Until recently, there were no limits placed on the amount of money that FDA policy makers could accept from drug companies, nor was there any governance around conflicts of interest. A limit of $50,000 per year has now been set (Adams). For the drug company Pfizer, these legal payments for training and marketing to 4,500 U.S. doctors amounted to $35 million in the first half of this year (Kirchgaessner). It might be legal, but the Department of Justice is investigating the legality of such practices going forwards.
Once the drugs have been approved and the doctors have chosen their favorite medications to supply to patients, the opportunities for corruption are only beginning. In the U.S. and abroad, there is a long supply chain in order to get the drugs into the hands of the individuals. You might think that the problem of counterfeit drugs would only affect people in Third World countries, but it is actually a global problem. Counterfeit drugs may include drugs that are manufactured in shady laboratories and substituted for the real thing in order to abscond with healthcare funds, but it may also include major corporations who have failed to include the active ingredient in the manufacturing process. They may include drugs with fraudulent packaging as well as drugs with too much of a certain ingredient (Medicines: Counterfeit Medicines). In other countries, the source of the medications may be unreliable and procurement may be through the black market or other illegal means. Ingredients can be harmful or even toxic. In southeast Asia, Latin America and Sub-Saharan Africa, 30% of drugs may be counterfeit. Former Soviet republics have high counterfeit rates of 20%. The biggest risk is from the increasing popularity of internet drug sales. Up to 50% of these sales may involve counterfeit drugs (Deen). What spending is not lost to counterfeit drugs, is often lost to embezzlement somewhere in the supply chain. It is estimated that 10-25% of the funds worldwide for the procurement of medicines is lost due to some form of corruption (Deen).
This year has seen one of the worst drug shortage problems in history. Many of the intravenous drugs (such as diuretics) are simply not available (Alazraki). While some drug companies do struggle with obtaining the ingredients or churning out the volume to meet demand, most of the shortages are being caused by business decisions by the companies. If there isn't a big enough profit margin on the drug, the manufacturer may decide to quit making it. If there is a newer drug on the market that costs more (and gives more profit), they will ramp up the production of the new drug, regardless of whether or not it is as effective (Alazraki). If the drug patent expires and the company no longer has exclusive rights to the production, it may also cease the manufacture and distribution of the drug. The drug companies are not required to give any advance notice for discontinuation of a drug. Chemotherapy patients and others may find themselves unable to continue in the middle of a course of treatment due to a lack of drug supply. It may get to the point where someone comes in with a curable disease, but the doctor has to try to explain to the patient that the drug companies have decided it's not economically advantageous to produce their necessary medication. Others in the government are looking at incentives, similar to farming subsidies in order to ensure a consistent supply of essential medicines (Alazraki). It's a novel approach to healthcare – having patient needs drive the supply, rather than economics.
Drugs are big business, with over $750 billion in pharmaceutical sales each year (Medicines: Corruption and Pharmaceuticals). Although countries with weak governance are most at risk for corruption, much of the corruption is being led by the international drug companies themselves. In places that lack standards of accountability and strong laws to enforce ethical business practices, the problems are compounded. The impact to the public can be enormous. When drugs are not available, are substandard, or are diverted to other destinations, patients suffer. People may die from otherwise treatable illnesses. The loss of funding (due to bribery, embezzlement and other corruption) takes away from the services that healthcare systems can provide. Sometimes it limits the number of patients that can be served and at other times it lowers the standard of the services that are received. Inconsistencies and sky-rocketing costs also lower the confidence that the consumer has in the pharmaceutical industry. People may be slower to seek assistance for medical problems, or turn to alternative remedies to avoid formalized healthcare when it is seen as an ineffective and corrupt institution. Worldwide corruption harms us all.
The prescription medicine industry is a failed system. New rules and regulations as well as new business practices are required as we face any increasing risk of damage to our healthcare system. Our current system is more focused on protecting the interests of the drug companies than the general public. The days of altruism in medicine are long gone, replaced by a single-minded focus on pure profit. Shouldn't there be a way to guide business practices based on the healthcare needs of the population? Maybe a more balanced approach to the selection of pharmaceuticals in our country is needed. Independent checks and balances that are not influenced by profit would be a good place to start.
Works Cited
Adams, Mike, “China Executes Top FDA Official While the U.S. Does Nothing to Counter Corruption”, NaturalNews.com, Natural News Network, July 11, 2007, http://www.NaturalNews.com/021931_the_FDA_corruption.html
Alazraki, Melly, “Drug Shortages: A Deadly Problem with No Cure in Sight”, dailyfinance.com, AOL Money & Finance, January 11, 2011. http://www.dailyfinance.com/2011/01/11/drug-shortages-a-deadly-problem-with-no-cure-in-sight/
Deen, Thalif, “Corruption in Pharmaceutical Industry Kills”, ipsnews.net, IPS – Inter Press Service, 2011. http://ipsnews.net/news.asp?idnews=35799
Gutierrez, David, “WHO issues warning about corruption of pharmaceutical industry”, naturalnews.com, Natural News Network, April 30, 2010. http://www.naturalnews.com/028686_Big_Pharma_corruption.html
Kirchgaessner, Stephanie, “US Probes Corruption in Big Pharma”, ft.com, The Financial Times Ltd, August 12, 2010. http://www.ft.com/cms/s/0/9a8e8f90-a63e-11df-8767-00144feabdc0.html#axzz1U1PoMPoY
“Medicines: Corruption and Pharmaceuticals”, who.int, World Health Organization, 2011. http://www.who.int/mediacentre/factsheets/fs335/en/index.html
“Pharma Corrupt Practices_Glaxo / Bristol-Meyers_Drug-Induced Deaths / Homicides”, ahrp.org, Alliance for Human Research Protection, September 14, 2006. http://www.ahrp.org/cms/content/view/341/29/
“Medicines: Counterfeit Medicines”, who.int, World Health Organization, January 2010. http://www.who.int/mediacentre/factsheets/fs275/en/
