Have the feds gone soft on pharma? Shrinking fines suggest it's yes, Public Citizen says

If you're reading Securities & Exchange Commission filings and pharma headlines, you've noted the Justice Department and SEC subpoenas that seem to be flying around everywhere--issue to Valeant Pharmaceuticals ($VRX), of course, amid its ever-expanding scandals, but a host of other familiar names as well.

And then there are the whistleblower lawsuits regularly accusing drugmakers of paying kickbacks and bribes, and otherwise misbehaving.

But if you've followed such matters for several years, you've probably noticed that, overall, the dollar value of actual settlements announced by the DoJ and other regulators tends to be smaller. Boehringer Ingelheim, Shire ($SHPG), Par Pharmaceutical and Actavis all worked out settlements in recent years, ranging from $45 million on the low end (Par) to $125 million on the high end (Actavis). The garden-variety settlement pre-2013 ran into the hundreds of millions--in a few cases, billions.

Indeed, a new report from the consumer group Public Citizen says the feds collected just $2.4 billion in penalties from pharma from 2014 to 2015, less than a third of the amount levied in 2012 and 2013--a tally that came to $8.7 billion.

That might be because drugmakers have wised up to the cost of breaking the rules of marketing--in the U.S. and abroad--and financial reporting. Mega-settlements don't just cost money, they cost in public opinion, and the pharma industry's image isn't so stellar already.

It might be because courts are more demanding when it comes to proving a False Claims Act case, as some legal experts have suggested. Or that the DoJ isn't going after off-label marketing as vigorously as in the past, as free speech defenses in such cases gain momentum.

Public Citizen, however, says one reason for the declining dollar value of settlements is that the DoJ has gone soft on pharma infractions.

The group points out that criminal penalties took a nosedive from 2012-2013 to 2014-2015, falling from $2.7 billion in the earlier period to just $44 million more recently.

Sammy Almashat

One of the report's authors, Sammy Almashat, says the group isn't sure why the settlement tally dropped in 2014 and 2015. And he acknowledges that there are several possible reasons for the overall decline, including some changes in Medicaid reimbursements. One thing he rejected outright was an actual improvement in industry compliance. "[P]revious penalties never have been large enough to deter the most common types of pharmaceutical fraud," Almashat said in a statement. "So it would be surprising if the industry suddenly decided of its own accord to comply with laws it has routinely violated for decades."

The industry group PhRMA calls the report's conclusions "misleading" and says pharma companies spend tens of millions of dollars annually on "state-of-the-art" compliance programs.

"Among its many methodological flaws, the report aggregates all settlements involving the pharmaceutical industry, with little regard as to whether the companies actually broke the law," PhRMA said in a statement. "Civil settlements rarely resolve the question of guilt. Yet the report glosses over its own finding that 88% of the settlements reported were civil, not criminal."

The report urges federal and state governments to step up enforcement activities. It also backs proposals to set up new deterrents, including legislation proposed by Sen. Bernie Sanders (I-VT) and Rep. Elijah Cummings (D-MD) that would strip marketing exclusivity from products involved in illegal activity.

Some drugmakers might disagree with Public Citizen's idea that the feds have backed off enforcement. In a kickbacks case directed against Novartis ($NVS), the Justice Department initially asked for $3.4 billion in penalties and paybacks last fall. And early this year, Pfizer ($PFE) agreed to pay more than $780 million to settle claims in a Medicaid pricing investigation.

- read the Public Citizen release