Memo to the DOJ: Pfizer Isn't "Too Big to Nail" -- Don't Let Management Off the Hook

Last Updated Apr 2, 2010 11:49 AM EDT

Apparently federal prosecutors believe that Pfizer (PFE) is "too big to nail" and therefore can never be excluded as a supplier for Medicare and Medicaid. Wrong! The Department of Justice has all the tools it needs to discipline the company -- the world's largest seller of drugs by revenues -- but prosecutors choose not to use them.

CNN reported today that prosecutors' $2.3 billion settlement with Pfizer over its mismarketing of Bextra, a painkiller, included the creation of a special shell company, "Pharmacia & Upjohn Co. Inc." that would plead guilty to the charges. That guilty plea would automatically exclude the company from government funded drug programs. P&UCI sold no drugs and had no real employees, and its creation was simply a figleaf to allow a Pfizer entity to take the rap without harming Pfizer itself (see CNN's diagram of the company's structure). CNN reported:
Prosecutors said that excluding Pfizer would most likely lead to Pfizer's collapse, with collateral consequences: disrupting the flow of Pfizer products to Medicare and Medicaid recipients, causing the loss of jobs including those of Pfizer employees who were not involved in the fraud, and causing significant losses for Pfizer shareholders.
"We have to ask whether by excluding the company [from Medicare and Medicaid], are we harming our patients," said Lewis Morris of the Department of Health and Human Services.
This is all very well, but as I noted a couple of days ago, the feds have more than one option for dealing with errant companies. They can prosecute individuals, including high-profile members of management.

Fines and settlements can inflict serious financial damage -- and even in Pfizer's world $2.3 billion is a large sum -- but they may create perverse incentives for companies to continue to promote drugs inappropriately. (And Wall Street simply ignores them as one-time charges.)

Prosecuting individuals, however, is a much more serious way of reforming company behavior. The CEO of Purdue Pharma pleaded guilty to a criminal charge for his marketing of OxyContin. He and his cronies have been excluded from doing business with Medicare and Medicaid. And Purdue has had a spotless record of drug promotion ever since. Former CEO Michael Friedman is currently begging the courts for his career back. That is not a trivial punishment.

Prosecutors did convict two people at Pfizer in the Bextra case, but they were both lower level sales people. What the DOJ pointedly failed to do was bring charges against anyone in management, even though the case threw up evidence indicating that management approved of its sales force's off-label promotion. Pfizer even put out a press release touting off-label study findings.

So, while Pfizer itself may indeed be too big to nail, the executives responsible are plainly not.

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