Friday, February 08, 2008

Meanwhile, down on the pharm

The US Federal government is probably (just guessing) the largest single purchaser of goods and services in the United States. Since the public purse is involved, many people expect/hope for some degree of accountability, prudence and transparency lest those public monies go to cronies, lobbyists and other parasites of the politics of the day.

Thus, the government sets up a complex spider's web of procurement bureaucracy and regulation to try to achieve at least the appearance of accountability, prudence and transparency in the government's procurement processes.

The stated goal of the process is to obtain the best value for the public's dollar. One of the ways it does this is to require the sellers of goods and services to offer to the government the best/lowest price it would offer to any other purchaser; if a seller offers xyz its lowest price that is available to all its customers, it must offer that same low price (no lower, but it must at least match it) to the government.

That may be a bit tough on sellers but nothing requires them to sell to the government (forced sales are handled a bit differently). But if they do want to sell to the government (and name one major US corporation that doesn't) they should play by those rules.

With that background, consider the news of the day in Big Pharma, particularly involving Merck.

Merck to pay over 650 mln dlrs to settle US drug pricing probe

Pharmaceutical giant Merck & Co. has agreed to pay over 650 million dollars to resolve allegations of fraudulent drug pricing and improper kickbacks, the US Justice Department announced Thursday.

The settlement hinged on two separate lawsuits relating to claims that Merck failed to pay proper rebates to government health care programs and that it made illegal payments to health care providers as inducements to use Merck products.

Attorney General Michael Mukasey said the accord marked "one of the largest healthcare fraud settlements ever achieved by the Justice Department."

"It reflects our continuing effort to hold drug companies accountable for devising pricing schemes that deliberately seek to deny federal health care programs the same lower prices for drugs that are available to other commercial customers," Mukasey said.

Merck to Pay $650 Million To Settle Pricing Probes
The major issue involved the misuse of a practice known as "nominal pricing," in a lawsuit filed by a former Merck employee and joined later by the Justice Department and all states except Arizona.

The nominal-pricing suit concerned deep discounts on drugs Merck allegedly offered to certain customers, but not to Medicaid, the government health-insurance program for the poor. It alleged that Merck offered discounts of 90% and more on the cholesterol pills Zocor and Mevacor and the now-withdrawn painkiller Vioxx to hospitals that helped the company achieve market-share goals, and that it also improperly incentivized doctors to use the products.

Federal law requires drug makers to give Medicaid the best price they offer any customer. But an exception in the 1990 law says medicines sold at a discount of 90% or more don't have to be disclosed or included in the best-price calculation. That steep discount was meant to let companies make inexpensive medicines available to charitable organizations.

The law doesn't specifically say who can receive the special pricing. But federal and state regulators alleged that Merck's pricing for the hospitals didn't qualify for such an exception, because it came in exchange for hospitals agreeing to sell certain volumes of Merck's drug -- at the expense of rival medications.

In essence, the low price was offered for marketing rather than charitable purposes.

Merck Settles With Gov't Over Rebates
From 1997 to 2001, Merck also gave money and perks to doctors and other health care professionals to entice them to prescribe Merck drugs, a practice the government called excessive.

Merck said the settlements do not constitute an admission of any liability or wrongdoing.

"What we have here is a disagreement (over) the rules of the Medicaid rebate program," said Merck spokesman Ronald Rogers. "These civil settlements were the best and most appropriate way to resolve these lengthy investigations and bring these matters to closure."

"At the time that these pricing programs were in place, Merck believes that it acted in good faith and complied with the regulations that were in place at the time," he said.

In what appears to Guambat to be a Merck statement,
"At Merck, we are dedicated to the highest standards of ethics and integrity," said Bruce Kuhlik, executive vice president and general counsel of Merck. "We have taken and will continue to take a leadership position in restoring trust in this industry and in ensuring that our interactions with healthcare professionals support the care of patients and further the public health."

Merck & Co., Inc. is a global research-driven pharmaceutical company dedicated to putting patients first.

Merck also publishes unbiased health information as a not-for-profit service.

How Merck Healed Itself By John Simons Feb 7, 2008
Over the past two years Merck has exceeded expectations on all fronts - scientific, financial, and legal. Since the beginning of 2006 it has gained FDA approval for seven new drugs, more than any of its peers. At the same time, the company has won the majority of the jury trials in its defense of Vioxx, the painkiller it was forced to withdraw from the market in October 2005 after studies linked it to heart attacks and strokes. Those victories enabled the company to settle the bulk of its lawsuits last November for $4.85 billion - considerably lower than the initial estimates of $20 billion. Investors have noticed, sending Merck's stock price up 75% since the beginning of 2006, far outpacing its peers.

Restoring Merck's reputation as a scientific partner grew easier as the company began to win Vioxx verdicts. And for that, the credit goes to Ken Frazier, 53. It was Frazier's call to contest, not settle, the Vioxx cases. Merck, according to insiders, wanted to compensate patients whose heart attacks and strokes were caused by Vioxx. But the company also wanted to show that it could defend itself in court against what it saw as frivolous claims, such as events that were the result of existing health problems.

Merck's resurgence is still a work in progress.... The bad news is the company may have another legal melee on its hands. The Justice Department and 32 state attorneys general continue to investigate Merck's marketing practices, including whether the company promoted Vioxx for "off-label," or unapproved, uses. Regulators are also questioning whether Vytorin, a cholesterol-lowering medicine that Merck co-markets with Schering-Plough (SGP, Fortune 500), works as well as claimed.

Others drug makers that have disclosed nominal-pricing probes include Johnson & Johnson, Schering-Plough Corp. and GlaxoSmithKline PLC.

Now, just where does that money go?

And, if it truly is fraud or even something like it, shouldn't Merck be barred from any more government contracting???

Not much chance of that if history is any guide:

Suspensions Are Just a SideShow By Steven L. Schooner May 1, 2002
Every administration purports to be against fraud, tough on government contractors and in favor of accountability in procurement. But this administration isn't.

One of George W. Bush's first actions as president was to eliminate the controversial Clinton administration labor responsibility rule. That so-called "blacklisting" rule would have broadened government buyers' discretion to avoid doing business with questionable firms. Killing that rule was a good decision, but the administration may now regret its timing.

More importantly, oversight of the government's purchasing regime is at unprecedented lows. During the 1990s, Congress systematically eviscerated the government's acquisition workforce, while greatly expanding flexibility for government buyers.

This Faustian bargain - greater buyer discretion in exchange for unjustified but politically popular personnel cuts - left a daunting legacy. Today, government buyers are overworked, under-trained and retirement eligible. The constant deluge of unfulfilled government needs means the remaining workforce must keep buying.

The shadow government described by Brookings Institution scholar Paul Light - which converts civil servants into contractor personnel - increases the government's reliance on service contractors. Good service contracts are difficult to write and even harder to manage. Yet fewer resources remain to plan these procurements, monitor contracts, or supervise the buyers responsible for these activities.

Those affected most dramatically by the 1990s workforce cuts were auditors, quality assurance personnel and accountants. As a result, a growing sense of lawlessness pervades a system that spends more than $200 billion each year.Nowhere is this more evident than with the government's high-volume purchases.

Many Are Caught but Few Suffer For U.S. Military Contract Fraud By RICHARD W. STEVENSON Published: November 12, 1990
Twenty-five of the 100 largest Pentagon contractors have been found guilty of procurement fraud in the last seven years, some more than once. Yet not one has been barred from Government contracting, and the renewed debate over how to discourage such fraud has produced no easy solutions.

The number of convictions and guilty pleas has accelerated in the last two years, with 16 cases involving 14 of the largest weapons makers. They include Boeing, Grumman and Teledyne, which made payoffs to obtain confidential Pentagon documents; Rockwell International and Emerson Electric, which overcharged the Government, and Fairchild Industries and Northrop, which failed to test certain weapons components or falsified the test results.

Spurred by the increase in fraud cases, Congressional committees have held numerous hearings in the last several months, and lawmakers are considering several proposals. One would ban a contractor from all Government business, a process known as debarment, for several years after a second fraud conviction. Another would prohibit companies from earning any profit on their Government work for a specified period. A third would call for a court-appointed "special master" to oversee all of a contractor's operations. Congress adjourned without taking action on the proposals, but legislators said they plan to address the subject in the next term.

US: Wages Of Sin - Why Lawbreakers Still Win Government Contracts by Christopher H. Schmitt, U.S. News & World Report May 13th, 2002
In the mid-1970s, Lockheed Aircraft Corp. was center stage in a scorching bribery scandal. Millions in secret payments were slipped to public officials and political parties around the globe, to curry favor and win government contracts.

Stung by the blowback, the company promised stringent reforms. Two decades later, Lockheed was again in the spotlight, pleading guilty to paying off an Egyptian official to win a deal for C-130 cargo planes. Once more, the company was contrite. Standing before a federal judge in 1995, a top executive pledged Lockheed's "commitment to the highest ethical standards of conduct."

In the years since, however, Lockheed's troubles have only grown. The company has been named in at least 33 more cases covering overcharges on government contracts, improper technology transfer to China, falsifying results of nuclear safety tests, job discrimination, environmental pollution, and more.

These cases, some of which were in motion before the 1995 conviction, have produced at least $145.3 million in penalties, settlements, and restitution. And at least 13 more cases are pending.

Lockheed Martin, as the company is known today, says it has a vigorous ethics and compliance program. And, it turns out, that promise is good enough for the Pentagon.

Lockheed Martin is not the only big federal contractor that continues to do business with Washington despite repeated contract difficulties and other legal and regulatory trouble. In the past dozen years, 30 of the 43 largest federal contractors have racked up more than 400 enforcement cases, resulting in at least 28 criminal convictions, 286 civil settlements, and 88 administrative settlements, mostly involving their government contracts, according to data from the Project on Government Oversight, a nonprofit Washington, D.C., group that investigates government activities, and additional research by U.S. News.

The companies have breached environmental, labor, and securities regulations as well, For their difficulties, the analysis shows, they have paid at least $3.4 billion in fines, penalties, and restitution.

The cases cover a wide swath, including price fixing, bogus testing, polluting, overcharging, hiding product defects, violating export laws, and withholding financial data from the government.

They also represent more than accounting quibbles: Company workers have been killed and seriously injured and national security potentially put at risk. Yet, together, these firms have corralled more than 4 of every 10 federal procurement dollars. "If it was a food-stamp recipient, they'd go to jail," says Rep Peter DeFazio, an Oregon Democrat, who complains about repeat offenders. "If it was a student-loan recipient who wasn't paying, they'd have their wages garnished. It's an extraordinary double standard."

The government actually has a process for cutting off wayward contractors from future work, but in practice, purchasing officers focus on getting projects done, not holding firms accountable for past behavior. And other officials responsible for barring firms can't legally use punishment as a motive, says Robert Meunier, head of a committee of those officials.

"We're here to protect the government's business interest," he says. Even if a current contractor is prevented from doing future business, the company could continue to do billions of dollars' worth of government work under existing agreements. As best as can be determined, the government has cut off only one of the 30 big contractors with problems - General Electric Co. - and, even then, suspended the company for just a few days.

But while the government may be reluctant to move against its biggest suppliers, federal agencies don't have the same qualms about cracking down on small firms. Officials maintain that federal rules are written evenhandedly, but they acknowledge that larger companies can naigate them more successfully.

Take James Verlander, a Houston-area researcher who in early 1990s got tangled up in Operation Lightning Strike, a federal sting operation targeting NASA suppliers. Federal agents drew Verlander and several others into a scheme revolving around a bogus medical device that supposedly could improve monitoring of space-station astronauts.

Threatened with a heavy prison sentence, he pleaded guilty to having accepted $2,000 as part of an effort to win approval and funding for the device, says his attorney, Charles Portz. Barred from government work ever since, Verlander suffered a nervous breakdown and has since become a medical technician.

By contrast, two big contractors that came under scrutiny in the affair - Martin Marietta and General Electric - settled their involvement by paying $1 million to defray the government's expenses.

"They didn't want to make arrests of the higher-up people because it would damage the space program," says Portz, "so they busted a bunch of little people.""They're pretty willing to settle it to stay in business," says Jacques Ganaler, former undersecretary of defense for acquisition, technology, and logistics, who is now a professor of public affairs at the University of Maryland.

Oversight of military and other federal spending has been kneecapped in recent years - through budget cuts and under the banner of streamlining regulation - and new proposals would weaken it further. Reflecting those developments and changing priorities, federal prosecution of contract fraud has fallen sharply in recent years, as have attempts by federal agencies themselves to rein in abuse, according to government data obtained by the Transactional Records access Clearinghouse at Syracuse University.


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