August 29, 2010

US probes pharma cos over bribing doctors

While the Indian government fights shy of legislating against bribes and kickbacks paid by pharma companies, the US department of justice has started investigating whether major drug and device companies have made payments to doctors and health officials while doing business in foreign countries.

Those being investigated include some of the largest pharmaceutical companies in the world such as GlaxoSmithKline (GSK), AstraZeneca, Merck, Bristol-Myers Squibb, Eli Lilly and Pfizer. These companies have received letters enquiring into their activities in a number of countries. If any company is found guilty it could mean penalties running into several million dollars and huge loss of reputation internationally.

The trigger for the DOJ focus could be a recent report that revealed that 40-65% of clinical trials for FDA-regulated products were conducted outside the US. The report found that 20 of the largest pharma manufacturers of the US were conducting one-third of their clinical trials exclusively at foreign sites. And it also noted that 80% of marketing approvals for drugs and biologics contained data from foreign clinical trials.

Hence, DOJ will be examining whether any corrupt practices like payments made to doctors running clinical trials for drug makers abroad affected the reliability of clinical data from studies outside the US. That should send warning signals to several operations in India that is becoming a hub for clinical trials for a large number of pharmaceutical companies.

The kind of payments that would be considered as corrupt could be broad including cash gifts, charitable donations, meals, entertainment, speaking fees, research grants, consultations and hospitality. The definition of “foreign official” under the FCPA too could be rather expansive including employees and managers of the public healthcare system which could mean doctors, administrators, procurement officials and other health professionals. The DOJ has made it clear that they will be going after not just the companies but will also focus on prosecuting individuals for their role in FCPA violations, even for actions taken even by a third party on behalf of the company, if someone in the company knew of the violation or if the circumstances suggested a high likelihood that the violation would occur.

During the last couple five years, about half a dozen of years pharmaceutical and medical device companies have had to agree to settlements with the Securities and Exchange Commission (SEC) and the department of justice (DOJ) for alleged kickbacks paid abroad. The payments made in the form of huge amounts in cash stashed in suitcases, so-called charitable donations and luxurious study trips to Las Vegas and Miami were mostly made to doctors or purchasing officials of public health systems to get them to buy the company’s products.

In November 2009, a senior DOJ official has warned the pharma industry that it intended to aggressively investigate violations of the Foreign Corrupt Practices Act (FCPA), 1977 in the pharma and medical devices industry. The DOJ, having recognised that the pharmaceutical industry with a third of its sales generated outside the US, was fertile ground for FCPA violations, has shown just how serious its intent is by setting up a healthcare fraud group dedicated to looking at bribery offences.

The FCPA enforcement is obviously a priority area with both the SEC and DOJ with 57 FCPA cases reportedly prosecuted in the last four years- more than double the number of prosecutions since FCPA became law in 1977. It is said that the DOJ is currently pursuing 120 investigations under the FCPA.

Not only the United States, but several other developed countries like the UK and Germany have adopted laws similar to the FCPA. Investigations into the pharmaceutical industry with its operations spread across several countries have resulted in international cooperation in anti-corruption investigations. In the Siemens settlement, the DOJ investigators worked with their German counterparts to bring Siemens to book. The consequent December 2008 settlement had the company agreeing to pay $800 million to the US authorities and $287 million to the office of the prosecutor general in Munich, Germany. Siemens employees had resorted to falsified accounting records, foreign intermediaries and hidden bank accounts to bribe government officials in eight different countries to secure billions of dollars in contracts in these countries.

While the cases so far seem to be mostly about operations in Latin America, China, Russia, Saudi Arabia and Iraq, could an India operation be far behind with its booming clinical trial industry and well documented corrupt practices in the drug industry?

Link: Original Article

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