Corporate responsibility and pharmaceutical fraud

This article discusses the issue of pharmaceutical fraud and the need for corporate responsibility in the industry. It covers the different types of fraud, regulations in the US and EU, and the False Claims Act. The article also highlights the role of whistleblowers in initiating cases against fraudulent practices.

Pharmaceuticals Policy and Law 14 (2012) 129–156 129
DOI 10.3233/PPL-120350
IOS Press
Corporate responsibility and pharmaceutical fraud
Jos´e Luis Valverde
Chaire Jean Monnet Europe of the Health, University of Granada, Granada, Spain
E-mail: [e-mail]
The Health-Care fraudulent practices cost billions of dollars each year. Fraud and corruption activities
can take place in any healthcare systems, whether they are predominantly public or private, well funded
or poorly funded, and in any area of healthcare delivery. Rooting out health care fraud is central to the
well-being of both the citizens and the overall economy.
Fraud and corruption in the healthcare sector are often hard to detect unlawful behaviour. Healthcare
is increasingly becoming multinational and needs tackling as such. A major concern has been fraud
schemes by pharmaceutical manufacturers and distributors. The world pharmaceutical market was worth
an estimated 614,583 million ($ 855,500 million) at ex-factory prices in 2011. The pharmaceutical
industry’s reputation has come under fire concerning the lack of transparency around its relationships
with governments and the health community. The annalist and the news papers condemn the disconnect
between the self-serving proclamations of “high ethical standards” and the reality of pharma’s conduct.
The regulation of the prosecution of the pharmaceutical fraud it is too completely different in United
Stated, EU and other countries. It is very important for the sector react whit efficacy. Its it one challenge
for the companies and for preserve the huge historical contribution in the health. Our society need to
preserve this patrimony and increase his efficacy.Building trust and transparency are indispensable in the
new policy on corporate social responsibility in the pharmaceutical industry.
Keywords: Pharmaceutical fraud, Medicaid, Medicare, False Claims Act, Off Label Marketing, corporate
responsibility, EU
1. One pharmaceutical industry two world regulation
The pharmaceutical companies have the common goal of fabric medicinal product
for all the people at global level. But the access of the population it is very different.
The world pharmaceutical market was worth an estimated 614,583 million
($ 855,500 million) at ex-factory prices in 2011. The North American market (USA
and Canada) remained the world’s largest market with a 41.8% share, well ahead of
Europe and Japan.
In 2011, North America accounted for 41.8% of world pharmaceutical sales com-
pared with 26.8% for Europe. According to IMS data, 56% of sales of new medicines
launched during the period 2006–2010 were on the US market, compared with 24%
on the European market and 12% Japan.1
Medicines can generate additional savings, by substantially reducing costs in other
branches of healthcare (hospital stays, invalidity, etc.).
1http://www.efpia.eu/sites/www.efpia.eu/files/EFPIA Figures 2012 Final-20120622-003-EN-v1.pdf.
1389-2827/12/$27.50  2012 – Network of Centres for Study of Pharmaceutical Law. All rights reserved

130 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
IMS Health publishes an analysis of trends expected in the pharmaceutical industry
every year. The then largest pharmaceutical and biotech companies ranked by health-
care revenue are: Pfizer, Novartis, Merck and Co., Bayer, GlaxoSmithKline, Johnson
and Johnson, Sanofi, Hoffmann–La Roche, AstraZeneca, Abbott Laboratories.
Pharmaceutical Companies participated in global market, but every country have
your own regulation. This situation product one fragmentation of the pharmaceutical
market even between EU.
The regulation of the prosecution of the pharmaceutical fraud it is too completely
different in United Stated, EU and other countries.
2. Fraud in the American Health Care System
Rooting out health care fraud is central to the well-being of both the citizens and
the overall economy.
Health care fraud costs the country an estimated $80 billion a year. And it’s a
rising threat, with national health care spending topping $2.7 trillion and expenses
continuing to outpace inflation. Recent cases also show that medical professionals
are more willing to risk patient harm in their schemes.
The FBI is the primary agency for exposing and investigating health care fraud,
with jurisdiction over both federal and private insurance programs.2
Cases involving fraud against Medicaid or Medicare are complex. The Medicare
Modernization Act (MMA) was passed by Congress after much debate. The Pre-
scription Drug Benefit (PDB) was originally touted as an important benefit for senior
citizens. However, in the opening stages, there were countless complaints about
unscrupulous vendors.3
From the years 2000, the U.S. Department of Justice has taken an aggressive posture
in prosecuting pharmaceutical manufacturers that have been found to use unethical
and illegal marketing and other schemes to gain market share with prescription drugs.
The number of schemes to defraud health care insurance is as varied as the services
and care providers in the health care field. Federal health care programs include
Medicare, Medicaid, and all other plans and programs that provide health benefits
funded directly or indirectly by the United States.
Fraud in the American Health Care System takes on many forms.A major concern
has been fraud schemes by pharmaceutical manufacturers and distributors. These
include: Good Manufacturing Practice (GMP) Violations; Off Label Marketing;
Best Price Fraud, CME Fraud; Medicaid Price Reporting; Manufactured Compound
Drugs; kickbacks to providers to induce a referral or a reward for past referrals; false
2http://www.fbi.gov/about-us/investigate/white collar/health-care-fraud.
3National Health Care Anti-fraud Association (September 2002) “Healthcare Fraud: A Serious and
Costly Reality for All Americans”, www.nhcaa.org.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 131
reporting under the Medicaid drug rebate law, and provision of off invoice discounts
in violation of Medicaid drug rebate laws.
This note constitutes an brief overview of the state of health care fraud in the
United States. It is not meant to be all-inclusive.
3. Current methods for handling fraud4
The False Claims Act (FCA), was enacted in 1863 by a Congress concerned that
suppliers of goods to the Union Army during the Civil War were defrauding the Army.
Since then, the FCA has been amended several times. Over the life of the statute it
has been interpreted on hundreds of occasions by federal courts. Our purpose is not
to explain how the FCA works. We simply explain the most significant elements of
the FCA for an introductory understanding of the FCA.
The statute begins, by explaining the conduct that creates FCA liability. The
Statute listing seven types of conduct that result in FCA liability.
After listing the seven types of conduct that result in FCA liability, the statute
provides that one who is liable must pay a civil penalty of between $5,500 and
$11,000 for each false claim and treble the amount of the government’s damages.
Where a person who has violated the FCA reports the violation to the government
under certain conditions, the FCA provides that the person shall be liable for not less
than double damages.
A person does not violate the False Claims Act by submitting a false claim to
the government; to violate the FCA a person must have submitted, or caused the
submission of, the false claim (or made a false statement or record) with knowledge
of the falsity. Knowledge of false information is defined as being: actual knowledge,
deliberate ignorance of the truth or falsity of the information, or reckless disregard
of the truth or falsity of the information.
The FCA also defines what a claim is and says that it is a demand for money
or property made directly to the Federal Government or to a contractor, grantee, or
other recipient if the money is to spent on the government’s behalf and if the Federal
Government provides any of the money demanded or if the Federal Government will
reimburse the contractor or grantee.
The False Claims Act and the Prosecution of Manufacturers Under the FCA, can
be found liable for civil penalties and treble damages based upon the Government’s
damages.
4. The qui tam provisions
The FCA allows private persons to file suit for violations of the FCA on behalf of
the government. A suit filed by an individual on behalf of the government is known
4www.oig.hhs.gov.

132 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
as a qui tam action,5 and the person bringing the action is referred to as a ‘relator’.
The qui tam provisions states that a person may file a qui tam action. A qui tam
complaint must be filed with the court under seal. The complaint and a written
disclosure of all the relevant information known to the relator must be served on the
U.S. Attorney for the judicial district where the qui tam was filed and on the Attorney
General of the United States.
The 1986 amendments to the False Claims Act strengthened the Act’s qui tarn, or
whistleblower, provisions and gave federal prosecutors one of their most effective
tools against defrauding the government.
The False Claims Act is often used to recover payments made to entities or
individual providers under false pretenses. The False Claims Act imposes civil
liability on any person or entity that submits a false or fraudulent claim for payment
to the U.S. Government. The False Claims Act prohibits: Making a false record or
statement to get a false or fraudulent claim paid by the government. Conspiring to
have a false or fraudulent claim paid by the government. Withholding property of the
government with the intent to defraud the government or to wilfully conceal it from
the government. Making or delivering a receipt for the government’s property which
is false or fraudulent. Making a false statement to avoid or deceive an obligation to
pay money or property to the government.
We does not discuss every section of the False Claims Act. It is intended only to
provide a minimum general terminology for introduction to the False Claims Act to
those new to the area.
5. The Fraud Enforcement and Recovery Act of 2009
After nearly a quarter of a century without a single legislative update, the U.S.
Government’s primary fraud-fighting weapon was finally modernized in 2009 and
2010. Specifically, by passing the Fraud Enforcement and Recovery Act of 2009
(FERA)6 and the Patient Protection and Affordable Care Act of 2010 (PPACA). 7
Congress removed some of the statutory confusion and liability loopholes that have
been undermining the federal False Claims Act (FCA). 8 Among other things, these
landmark amendments restored key liability provisions and changed the cost-benefit
analysis for dishonest entities who seek to steal Government funds.Additional work
is still needed in the future to fully restore the Act.9
5Qui tam derives from the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur,
meaning “who as well for the king as for himself sues in this matter.”
6Pub. L. No. 111-21, 123 Stat. 1617. American Recovery and Reinvestment Act of 2009, Pub. L. No.
111-5, 123 Stat. 115.
7Pub. L. No. 111-148, 124 Stat. 119.
831 U.S.C. 3729 et seq.
9Joseph E. B. “Jeb” White, Esq. The future of the false claims act: back to the future for the govern-
ment’s primary fraud-fighting weapon. Nolan and Auerbach, P.A.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 133
These acts, among other things, amended bases for liability in the FCA and
expanded certain rights of qui tam relators.10
From 1999 to 2002, more than 3,600 civil actions were successful. In this same
period, there were more than 19,000 exclusions.HHS has been involved in more that
1,300 ‘qui tam’ investigations over the past five years. HHS reported the successful
conclusion of 258 criminal convictions, 105 federal civil actions, and 1,695 exclusions
from the federal health care program.11
6. Whistle-blowers can initiate cases
Prosecution and prevention of health care fraud and abuse are essential to reducing
U.S. health care spending. Currently, 90% of health care fraud cases are ‘qui tam’
actions in which whistle-blowers with direct knowledge of the alleged fraud initiate
the litigation on behalf of the government. If a qui tam action leads to a financial
recovery, the whistle-blower stands to collect a portion of the award. From 1996
through 2005, qui tam actions led to more than $9 billion in recoveries. In follow
year the increase was exponential.
Whistle-blowers (as relators) can initiate cases by filing a sealed complaint in fed-
eral court, nearly always with the help of a personal attorney. Department intervenes
result in judgments against or settlements with the defendant.12
The False Claims Act allows an individual, often referred to as a whistleblower,
who knows about a person or entity who is submitting false claims to bring a suit, on
behalf of the government, and to share in the damages recovered as a result of the
suit. The whistleblower that brings the case is called a qui tarn relator.13
The whistleblower protection clause is one of the strongest protection clauses in
federal law. It not only protects the relator but anyone who investigates, initiates,
testifies in furtherance of, or assists in a case.
But although FCA prosecution has the potential to exact large monetary fines from
manufacturers, overall the FCA is ineffective at deterring future fraud for a number
of reasons. First, there appears to be a lack of sufficient investigation. A second
major problem with the FCA is the Government’s over reliance, on qui tarn suits.
The effectiveness of qui tarn suits to combat fraud, however, has frequently been
questioned. A third major problem with the FCA is that prosecution typically results
10OIG. State False Claims Act Reviews.https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.
asp.
11HHS Office of Inspector General Part IV – Public Health, Human Services, Semiannual Report
to Congress – Spring 2012. Medicare Program Reviews. https://oig.hhs.gov/reports-and-publications/
archives/semiannual/2012/spring/sar-s12-01-medicare.pdf.
12Kesselheim, Aaron S, Md, Jd, Mph; Studdert, David M, Llb, Scd, Mph; Mello, Michelle M, Jd, Phd,
Mphil, Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies. The New
England Journal of Medicine 362, 19: 1832-9 (2010).
13Accessed at www.quitam.com.

134 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
in a monetary judgment or settlement against the manufacturer and fails to deter
future criminal behaviour.
7. Anti-kickback statute
The failure of ethical norms to deter behaviour that is widely regarded as unaccept-
able is a classic trigger for the imposition of legal norms. Just such a phenomenon
is occurring today with the insertion of the federal anti-kickback law into this arena
by federal prosecutors by criminalizing suppliers’ efforts to induce use of products
or services by providing “remuneration” to ordering physicians. Giving, accepting,
or offering to give or accept such remuneration can result in severe criminal and civil
penalties. Amendments in 1977, 1980, and 1987 sought to refine the statute’s scope
and application.
Another form of fraud is manufacturers’ attempts to encourage, persuade, or bribe
health-care providers to prescribe a particular drug. It is unlawful to “knowingly and
wilfully” offer to pay any “remuneration . . .directly or indirectly . . .in cash or in
kind” to any person to induce such person to purchase or order any item “for which
payment may be made . . .under a federal health-care program”.
Because government officials believe such intrusions into the important medical
decisions of doctors cannot be allowed, the Government will continue to prosecute
claims of illegal kickbacks and incentives.
A concern in the Medicare and Medicaid programs are conflict of interest is-
sues, referred to as Stark violations. These are violations where doctors or other
practitioners provide or are provided kickbacks for business or referrals.
Governance of the relationships between physicians and pharmaceutical companies
has long relied on professional concern about potential conflicts of interest, rather
than legal regulation.
8. Exclusion and Corporate Integrity Agreements
Other action have relevant importance as the Exclusion and Corporate Integrity
Agreements. An important action that can be taken by HHS is exclusion of a provider
from billing federal insurance programs or serving in any institution or practice that
receives federal funds. The effect of an exclusion (not being able to participate) is
that no payment will be made by any federal health care program for any items or
services furnished, ordered, or prescribed by an excluded individual or entity.
A contractor can be excluded or debarred from federal contracting. The purpose
behind exclusion and debarment is not to punish contractors for past behaviour, but
to ensure their present responsibility. One issue with debarment and/or exclusion
is that some companies have become “too big to debar”. The chief counsel for the

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 135
inspector general of HHS was quoted in 2010 as saying some companies are, in fact,
“too big to debar” because debarring them would only hurt patients.
The OIG often negotiates compliance obligations with health care providers and
other entities as part of the settlement of federal health care program investigations
arising under a variety of civil false claims statutes that is the Corporate Integrity
Agreements.
The Current Use of Corporate Integrity Agreements is inadequate to ensure Man-
ufacturers’ Present Responsibility.
9. Different schemes used to defraud
Pharmaceutical fraud involves activities that result in false claims to insurers or
programs of health care system for financial gain to a pharmaceutical company.
There are several different schemes used to defraud the health care system which are
particular to the pharmaceutical industry.
The methods in which pharmaceutical manufacturers can contract with the Federal
Government are complex and varied. In some instances, the Government contracts
with third-party companies to act as intermediaries between the drug manufacturers,
patients, and the Government. The Government also may directly contract with the
pharmaceutical providers to purchase pharmaceuticals.
Centers for Medicare and Medicaid Services. One of the most direct ways that
Medicare purchases drugs is through Medicare Part D. Medicare Part D was created
by Congress in 2003 as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003.
This problem manifests itself in a number of ways. Properly, it is necessary differ-
entiated pharmaceutical fraud and counterfeit drugs. The two figures are fraud but
are different implications. Even this two type of crimes will have complementary
effect. In the two are financial gain but in counterfeit drugs are too crime again the
health.
Counterfeit drugs are defined as medications that differ in some respect from what
is stated on the label. They include drugs that contain smaller amounts of active
pharmaceutical ingredient than claimed, the wrong active ingredients, or no active
ingredients at all. Even if medications contain the stated amount of active ingredient
but were no by the pharmaceutical company noted on the label, they are considered
counterfeit. Fake drugs also include expired products that have been relabeled with
new expiration dates.14
Adulterated drugs are those that have lost some or all of their effectiveness from
improper storage or handling or are contaminated with bacteria or other microorgan-
isms.
14Combating Counterfeit Drugs, A Report of the Food and Drug Administration, February 2004.

136 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
Some of the drugs that have been particular targets of counterfeiters are expensive
products designed for the sickest patients. The FDA had reported, for example,
counterfeit Procrit, an antianemia drug, placed at risk patients severely ill with
cancer and AIDS, and counterfeit Epogen caused grave medical complications for
organ transplant recipients and patients with end-stage kidney disease. Lipitor, a
widely prescribed medicine for lowering cholesterol.
In USA some pharmacies that supply nursing homes and hospices knowingly and
fraudulently order at discounted prices far more drugs than they can use, then sell the
excess to shady wholesalers at a profit.
In addition, some pharmacies that compound drugs for patients with special needs
create formulations that are seriously subpotent, that is, they contain less of the active
ingredient than indicated on the label. These problems of drug diversion exist all
over the country.
10. Fraud from the wholesalers
In the U.S., there are three large drug wholesalers – AmerisourceBergen, Cardinal
Health, and McKesson – and an estimated 7,000 smaller, secondary wholesalers.All
wholesalers are regulated by the states. The three large wholesalers handle 90% of
the drugs in this country. They buy most of them directly from manufacturers and sell
to retail pharmacies, hospitals, nursing homes, and hospices. They purchase drugs
for resale to retail pharmacies at one price, and drugs for resale to hospitals, nursing
homes, and hospices at discounted prices – on average 40% lower. Over the years,
inspectors had always assumed that drug wholesalers were running their businesses
properly and therefore performed few inspections. An alarming percentage of the
drugs in wholesale market had been illegally acquired or illegally imported from
overseas.
In 2003 The National Association of Boards of Pharmacy develop model legislation
for the states that would help eliminate corruption among drug wholesalers and min-
imize the chances that wholesalers would purchase from counterfeiters. The States
license wholesalers, yet many lack the resources to verify whether the wholesalers
are handling drugs properly or engaging in fraudulent behaviour.
Experts have a variety of opinions on how to eliminate corruption in the wholesale
industry. Some says that one part of the solution is to mandate “strict liability for
those who sell a counterfeit or adulterated drug regardless of whether they knew about
it. By instituting very strong financial disincentives for selling counterfeit drugs, you
in effect force manufacturers and wholesalers to pick their own methods of security
and safety”.15
15B. Hileman, Counterfeit drugs, Cenear 81, 45: 36-43 (2003).

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 137
Manufacturers could do something about the problem by selling drugs only to
wholesalers who agree not to buy drugs on the secondary market, a combination of
legal changes and technological solutions is needed to secure the drug supply.
Corrupt secondary wholesalers are causing problems in the drug supply chain.
11. The risks posed by improperly compounded drugs
But not all counterfeit and adulterated medication in the U.S. comes through
wholesalers. Compounded drugs are another source. Compounding is the combining,
mixing, or altering of ingredients by a licensed pharmacist to create a customized
drug; it often serves a legitimate function. In some cases, a dye or a preservative
is removed from a drug to accommodate a patient’s allergy; in others, a drug is
converted to a different dosage form – from a pill to a liquid – for example, so an
elderly patient can swallow it. Under FDA regulations, compounded drugs can only
be made on receipt of a valid prescription.
“Compounding seems to be a growing business”, Steven Galson, acting director
of FDA’s Center for Drug Evaluation and Research, told in 2003 that an estimated
13 million to 30 million compounded products are sold each year.The vast majority
of compounding pharmacies are performing a legitimate function, but abuses are
increasing, he warned.
“Sometimes these pharmacies compound a product containing an active ingredient
not approved by FDA”, he said. Other pharmacies manufacture drugs that FDA has
previously withdrawn from the market for safety reasons, he explained. There
have been several instances in which medicines were compounded under non sterile
conditions. States are the primary regulator of compounding pharmacies.
From this days many States are strengthening their regulations governing com-
pounding, However, some states do not have the resources to inspect compounding
facilities or to enforce their regulations. It is necessary do random testing of com-
pounded drugs. Accurate, complete, and unbiased information about the compound-
ing industry in the U.S. is not available. Not in the EU.
All new prescription drugs must be approved by the FDA in USA or by the EMA
in the EU or National Pharmaceutical Agencies. When a doctor writes a prescription
to treat your ailment, on assume that the drug has been approved for that use by
the Food and Drug Administration (FDA) or other Agencies. That’s a reasonable
assumption, but it is not always true. One in five prescriptions in the U.S. is for a use
not approved by the FDA. And most of those (about 75 percent) are for a use that
lacks any evidence or rigorous studies to back it up.
When a doctor prescribes a drug for an unapproved use, it’s called an ‘off-label’
prescription. The term refers to the fact that all drugs have ‘labelling’ – detailed
written descriptions of their intended use based on studies submitted to the FDA.
Importantly, off-label drug use is legal. But there is growing concern that it’s
on the rise; it’s not always wise; it’s getting riskier; drug companies skirt the rules

138 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
restricting the promotion of off-label uses; consumers aren’t as informed as they
should be when a doctor prescribes a drug off-label; and inappropriate off-label use
adds to wasteful health spending.
The problem it is that the Congress has long specified that the FDA can not
“practice medicine”, and that once a drug is approved and on the market for any
purpose, doctors are the best arbiters of how it is used and for whom.
But Companies can’t legally promote a drug to doctors (or consumers) for uses
not approved by the FDA and stated in the drug’s labelling. In addition, insurers
and government (Medicare and Medicaid) now scrutinize off-label uses much more
closely, and don’t pay for many off-label prescriptions.
One other important piece of background: there are really two kinds off-label
drug use. One involves using a drug approved for one disease to treat a completely
different disorder.
A second kind of off-label use involves prescribing a drug to treat the condition or
ailment it was approved for, but outside certain specifications.
12. Strategies and Practices in Off-Label Marketing of Pharmaceuticals
Off-Label Marketing. Off-label marketing is one of the most dangerous forms of
fraud because it involves a manufacturer advertising and promoting one of its drugs
for uses not recommended by the Food and Drug Administration (FDA). The act of
promoting a drug for uses other than those approved by the FDA is not in and of itself
considered fraudulent.
Fraud occurs when a claim is submitted to the Federal Government for a prescrip-
tion drug that was used for purposes not approved by the FDA.
While the appropriateness of prosecuting manufacturers for of label marketing
through the FCA is still debated, the Federal Government continues to view off-label
marketing as a serious threat to the health of the United States.
One article dedicated to the study Strategies and Practices in Off-Label Marketing
of Pharmaceuticals said that despite regulatory restrictions, off-label marketing of
pharmaceutical products has been common in the US. However, the scope of off-
label marketing remains poorly characterized. The article analyze whistleblower
complaints against pharmaceutical companies filed in US federal fraud cases that
contained allegations of off-label marketing from January 1996 to October 2010. The
study identified 41 complaints arising from 18 unique cases of the analytic sample
(leading to US$7.9 billion in recoveries). The conclusion of this study establish
that Off-label marketing practices appear to extend to many areas of the health care
system. Unfortunately, the most common alleged off-label marketing practices also
appear to be the most difficult to control through external regulatory approaches. 16
16Kesselheim AS, Mello MM, Studdert DM (2011) Strategies and Practices in Off-Label Marketing
of Pharmaceuticals: A Retrospective Analysis of Whistleblower Complaints. PLoS Med 8(4): e1000431.
doi:10.1371/journal.pmed.1000431.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 139
The authors suggest that no regulatory strategy will be complete and effective without
physicians themselves serving as a bulwark against off-label promotion.
13. GMP violations
Involve fraud with the Good Manufacturing Practice (GMP) Regulations which re-
quire manufacturers to have adequately equipped manufacturing facilities, adequately
trained personnel, stringent control over the manufacturing process, appropriate labo-
ratory controls, complete and accurate records, reports, appropriate finished product
examination, and so on. Certain violations of the Good Manufacturing Practice
Regulations may be the basis for a False Claims Act lawsuit.
14. Fraud in science and implications for the pharmaceutical industry
The implications of fraud in science for the pharmaceutical industry was described
for Baumbauer (1998), including the need for impeccable, nonbiased clinical research
of new medicines, distinctions between sponsored and no sponsored research, and
the need for inspections and audits of clinical research in order to detect misconduct
and fraud.17
The global pharmaceuticals market grew by 3.6% in 2010 to reach a value of
$733,104.8 million. In 2015, the global pharmaceuticals market is forecast to have a
value of $981,050.8 million, an increase of 33.8% since 2010.
The Americas accounts for 44.6% of the global pharmaceuticals market value.
Pfizer is the leading player in the global pharmaceuticals market, generating a 9.4%
share of the market’s value.
15. Relationships between physicians and pharmaceutical companies
There is a growing realization, of the troubling influence that pharmaceutical
marketing can have on patient care. Physicians have been the central target of
marketing strategies, and they remain so even after the rise of direct-to-consumer
marketing. The pharmaceutical industry spends approximately $12 billion annually
on gifts and payments to physicians.
Growth in promotional activity has paralleled the rise of the industry’s importance
as a funder of mainstream research and education. Approximately 60 percent of
biomedical research and development today is privately funded. Pharmaceutical
17Baumbauer, E. Fraud in science and implications for the pharmaceutical industry, International
Journal of Pharmaceutical Medicine. 12, (2), 51, (1998).

140 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
companies’ share of funding for clinical trials is more than 70 percent and has grown
sharply during the past decade. The industry also shoulders more than half of the
costs of formal programs of continuing medical education.
Financial entanglement has bred close ties between the industry and physicians.
These interactions are defended as a way to provide useful information for physi-
cians as they address difficult problems in treating their patients. But a body of
federal law dealing with “fraud and abuse” has evolved to the point where it can
and is being used by prosecutors to punish pharmaceutical companies and physicians
involved in marketing practices that were once fairly common. Thus, the law has
begun to annex terrain previously controlled by professional ethics.18
16. One long way of persecution of pharmaceutical fraud
16.1. Roche and the global price fixing cartel vitamins
Between 1991 and 1999, have work un cartel in the sector of vitamins.They acted
together to fix prices. The cartel, which included industry giants like F. Hoffmann-La
Roche and BASF AG, reached agreements on prices and production levels, directly
victimizing corporate giants like General Mills, Kellogg, Coca-Cola, Tyson Foods
and Procter and Gamble. Prosecutors say those companies, in turn, passed on
billions of dollars in inflated costs to American consumers – anyone who took a
vitamin, drank a glass of milk or ate a bowl of cereal. The Washington-based group,
Taxpayers Against Fraud, said in one report that the matter was prosecuted through
a series of court actions in the USA, Canada, Europe and Australia. The costs for
these companies was enormous. The companies have probably paid out somewhere
of US $ 10 billion to settle the criminal and civil actions which resulted. The first
exposures occurred in 1997. The vitamin cartel was the “most pervasive and harmful
criminal antitrust conspiracy ever uncovered”, said Assistant Attorney General Joel
I. Klein, Reno’s antitrust chief.19
In 2003, in USA, Drug Companies Settle Suits for $1.6 Billion.20 The defendants
were Astra Zeneca, Bayer, Dey, GlaxoSmithKline, Pfizer and TAP Pharmaceuticals.
Roche kept adding to its reserves to settle the actions reaching US $6.8 billion
in 2003. Roche pioneered the industrial synthesis of vitamin C in 1934, and has
been the leading manufacturer of vitamins ever since, with annual sales of 3.5 billion
Swiss francs ($2.34 billion).
18Studdert, David M, Mello, Michelle M, Brennan, Troyen A, Financial Conflicts of Interest in Physi-
cians’ Relationships with the Pharmaceutical Industry – Self-Regulation in the Shadow of Federal Prose-
cution. The New England Journal of Medicine 351. 18 (Oct 28, 2004): 1891-900.
19“Drug Makers To Pay Top Fine in Price Fix”, Chatanooga Times Free Press (Tennessee) May 21,
1999.
20New York Times November 6, 2003.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 141
In the pharmaceutical frauds the bulk of the fraudulent practices have been directed
to government funds and the hip pocket of consumers.
Europe was far less strict about price fixing than the USA and there was little
surveillance. Commercial arrangements consequently flourished in Europe and then
spread globally. The USA was more sensitive about collusive practices. The cartels
were first exposed in the USA.
There were four sets of actions in the USA: Criminal proceedings by the US
Department of Justice against companies and their executives. A number of execu-
tives pleaded guilty and were sentenced to prison sentences. Civil proceedings by
some states against the companies. Class actions for the companies who had been
defrauded and for the citizens who had paid more for their goods. The latter were
disbursed in charitable nutritional and health initiatives, and Individual actions by
several large corporations who felt that the class settlement was too low. In addition
to this some victims preferred to maintain good business relationships and negotiate
compensation outside the courts.
The staggering extent of the fraud is apparent from the European documentation.
In November 2001 eight companies were charged with one set of cartel operations
and two weeks later another nine were charged in regard to another cartel. Many
were different companies to those prosecuted in the USA. In Europe this was not a
crime and no one went to prison.
The European Union had levied a record $752-million-US fine against eight chem-
ical and drug companies for fixing vitamin prices.
The executive Commission said that the firms had been under investigation since
1999 for colluding to eliminate fair competition for vitamin pills and overcharge
consumers. The Commission said the cartel had a “formal structure and hierarchy”
and included a regular exchange of sales figures and pricing data.
“This is the most damaging series of cartels the commission has ever investigated
due to the sheer range of vitamins covered which are found in a multitude of products
from cereals, biscuits and drinks to animal feed, pharmaceuticals and cosmetics,” the
EU competition Commissioner, Mr Mario Monti, said.21
The problem, even after such a large fine, is that critics say the EU should have the
power to levy criminal sanctions for price-fixing as is the case in the US, Canada and
Japan. Vitamin company executives have been jailed in the US over this same case.
16.2. Others defraud Medicaid drugs
In January 2001, Bayer became the first of 21 drug companies investigated over
a 3 year period to pay a US $14 million fine for overcharging federal and 45 state
Medicaid services for drugs. Other companies are being investigated and prosecuted.
In Boston, the District of Massachusetts had great success in bringing civil and
criminal action against TAP Pharmaceuticals and Bayer.In addition to action against
21European Comisi ´on,November 22, 2001.

142 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
the corporation, several high-ranking corporate executives and sales personnel were
charged and convicted to criminal violations. Several urologists were convicted of
fraud, and dozens more physicians were fined under the civil monetary penalty laws
for their part in charging the Medicare program for Lupron doses.22
It seems that the Mediciad fraud in 2001 was only the tip of the iceberg. In
April 2003 Bayer agreed to a criminal conviction and to pay US $257 million for
inflating prescription drug prices for Medicaid. Bayer was the principal offender but
many other companies were investigated. GlaxoSmithKline paid a fine of US $87.6
million.23
Abbott seems to have been the prime mover in a scheme to defraud Medicare and
Medicaid when selling medical equipment. In 2001 Abbott paid a US $560 million
civil settlement, a US $290 million criminal fine, and US $25 million to the US states
that were defrauded.
16.3. Criminal and civil actions against pharmaceutical companies 1991–2010
In one study Public for the Citizen’s Health Research Group in 2010, examined
trends from 1991 to the present in federal and state criminal and civil actions against
pharmaceutical companies in order to address these questions. 24 In this period of
rapidly rising drug costs, the U.S. spending on prescription drugs has increased from
$40 billion in 1990 to $234 billion in 2008. Recent billion-dollar settlements with two
of the largest pharmaceutical companies in the world, Eli Lilly and Pfizer, provide
evidence of the enormous scale of this wrongdoing.
Of the 165 settlements comprising $19.8 billion in penalties during this 20-year
interval, 73 percent of the settlements (121) and 75 percent of the penalties ($14.8
billion) have occurred in just the past five years (2006–2010).
Four companies (GlaxoSmithKline, Pfizer, Eli Lilly, and Schering-Plough) ac-
counted for more than half (53 percent or $10.5 billion) of all financial penalties
imposed over the past two decades. These leading violators were among the world’s
largest pharmaceutical companies.
The practice of illegal off-label promotion of pharmaceuticals has been responsible
for the largest amount of financial penalties levied by the federal government over the
past 20 years. The report proposal that this practice can be prosecuted as a criminal
offense because of the potential for serious adverse health effects in patients from
such activities.
22Charatan, R, (Jan 6, 2001). US settles biggest ever health care fraud case, British Medical Joumal
(International Edition), 322 (7277), p.10.London.
23Rx R&D Myths: The Case Against The Drug Industry’s R&D “Scare Card”, 2001, Public Citizen
Web site.
24Sammy Almashat, M.D., M.P.H, Charles Preston, M.D., M.P.H, Timothy Waterman, B.S., Sidney
Wolfe, M.D “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Indus-
try: 1991 to 2010”. Public Citizen’s Health Research Group. December 16, 2010. http://www.citizen.org/
hrg1924.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 143
Deliberately overcharging state health programs, mainly Medicaid fraud, has been
the most common violation against state governments and is responsible for the
largest amount of financial penalties levied by these governments. This type of
violation is also the main factor in the considerable increase in state settlements with
pharmaceutical companies over time.
17. Big cases of Fraud and abuse activities
17.1. Allegations of Off label Promotion of Zyprexa (Eli Lilly)
In January 15, 2009, American pharmaceutical giant Eli Lilly and Company was
agreed to plead guilty and pay $1.415 billion for promoting its drug Zyprexa for uses
not approved by the Food and Drug Administration (FDA). This resolution includes
a criminal fine of $515 million. Eli Lilly will also pay up to $800 million in a civil
settlement with the federal government and the states.
The FDA originally approved Zyprexa, also known by the chemical name olan-
zapine, in Sept. 1996 for the treatment of manifestations of psychotic disorders. In
March 2000, FDA approved Zyprexa for the short-term treatment of acute manic
episodes associated with Bipolar I Disorder. In Nov. 2000, FDA approved Zyprexa
for the short term treatment of schizophrenia in place of the management of the
manifestations of psychotic disorders. Also in Nov. 2000, FDA approved Zyprexa
for maintaining treatment response in schizophrenic patients who had been stable for
approximately eight weeks and were then followed for a period of up to eight months.
Zyprexa has never been approved for the treatment of dementia or Alzheimer’s de-
mentia.
17.2. Settlement of Pfizer for “off-label” marketing of “Bextra”
The Justice Department announced In the year 2009, that American pharmaceutical
giant Pfizer Inc. and its subsidiary Pharmacia &Upjohn Company Inc.(‘Pfizer’) was
agreed to pay $2.3 billion, to resolve criminal and civil liability arising from the illegal
promotion of certain pharmaceutical products.25 Bextra is an anti-inflammatory drug
that Pfizer pulled from the market in 2005. Under the provisions of the Food, Drug
and Cosmetic Act, a company must specify the intended uses of a product in its
new drug application to FDA. Once approved, the drug may not be marketed or
promoted for so-called “off-label” uses – i.e., any use not specified in an application
and approved by FDA. Pfizer promoted the sale of Bextra for several uses and dosages
that the FDA specifically declined to approve due to safety concerns. The company
will pay a criminal fine of $1.195 billion.
25http://www.newsrx.com/library/topics/Medicare-and-Medicaid.html> Medicare and Medicaid.

144 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
Pharmacia and Upjohn will also forfeit $105 million, for a total criminal resolution
of $1.3 billion. In addition, Pfizer has agreed to pay $1 billion to resolve allegations
under the civil False Claims Act that the company illegally promoted four drugs:
Bextra; Geodon, an anti-psychotic drug; Zyvox, an antibiotic; and Lyrica, an anti-
epileptic drug – and caused false claims to be submitted to government health care
programs for uses that were not medically accepted indications and therefore not
covered by those programs.
The civil settlement also resolves allegations that Pfizer paid kickbacks to health
care providers to induce them to prescribe these, as well as other, drugs. As part of
the settlement, Pfizer also has agreed to enter into an expansive corporate integrity
agreement with the Office of Inspector General of the Department of Health and
Human Services. That agreement provides for procedures and reviews to be put in
place to avoid and promptly detect conduct similar to that which gave rise to this
matter. Whistleblower lawsuits filed under the qui tam provisions of the False Claims
Act that are pending.26 Bextra was withdrawn from the market in 2005.
17.3. Fraud and abuse activities involving reimbursed drugs in Medicare and
Medicaid in 2010
In its semi-annual report to Congress on waste, fraud, and abuse in public health
Programs, the Office of the Inspector General (OIG) at the Department of Health and
Human Services (HHS) declares that $4.9 billion was recovered from providers –
including Big Pharma – in the form of penalties and sanctions during FY2010, ended
Sept. 30.
The report also profiles the successful prosecutions led by OIG in 2010 against 15
pharmaceutical and medical device industry, receiving multimillion dollar settlements
against each. The list: Allergan, Novartis (in three cases, involving pharmaceuticals,
vaccines, and the company’s Sandoz generics division), AstraZeneca, KV Phar-
maceuticals, Mylan, Forest Laboratories, Intermune, Teva, Ortho-McNeill/Janssen,
Alpharma, Cardinal Health, Boston Scientifi c, Spectranetics, Atricure, and Biovail.
The report does not cover more recent actions against Pfi zer and GSK.
The most prominent causal factor was promotion of drugs for off-label uses not
sanctioned by the FDA. The three biggest targets – Allergan, Novartis, and Astra-
Zeneca – paid fines totaling just under $1 billion as a settlement, or approximately
one-fifth of the total haul taken by the federal government from the FY2010 fraud
and abuse prosecutions.
The law firm of Nolan and Auerbach, P.A. participated in the settlement with
Allergan, Inc. and Forest Pharmaceuticals, Inc. In September 15, 2010 in one Press
Release informed that under the federal Food, Drug and Cosmetic Act, every drug
26Medicare and Medicaid; Justice Department Announces Largest Health Care Fraud Settlement in Its
History. Medical Letter on the CDC & FDA (Sep 20, 2009): 72.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 145
must be approved by the FDA for safety and effectiveness before it can be marketed
to the public. However, the FDA has recently acknowledged that there are thousands
of unapproved drugs illegally on the market, posing serious health risks to patients,
particularly Medicaid recipients, many of whom are elderly or disabled, and who
have extensive healthcare needs.
Medicaid provides prescription drug reimbursement only for statutorily defined
“Covered Outpatient Drugs”, which are drugs that the FDA has approved for safety
and effectiveness and that are dispensed by prescription. To be eligible to receive
Medicaid payments, drug companies must quarterly certify to the Center for Medi-
care and Medicaid Services (“CMS”) that each “drug” they designate as a Covered
Outpatient Drug meets the statutory definition.27
17.4. Others Fraud by Pharmaceutical Manufacturers
In October 2010, GlaxoSmithKline LLC (GSK) paid $600 million to resolve FCA
allegations and related state claims in connection with its manufacturing and distri-
bution of certain adulterated drugs made at GSK’s now-closed Cidra, Puerto Rico,
facility. In addition, SB Pharmco Puerto Rico Inc., a GSK subsidiary, pled guilty to a
criminal felony for releasing into interstate commerce adulterated Kytril, Bactroban,
Paxil CR, and Avandamet, in violation of the Food, Drug, and Cosmetic Act (FD-
CA) and paid a criminal fine of $150 million. A criminal information charged that
SB Pharmco’s manufacturing operations failed to ensure that Kytril and Bactroban
finished products were free of contamination from microorganisms. The criminal
information further charged that SB Pharmco’s manufacturing process caused Paxil
CR two-layer tablets to split, which led the company to distribute tablets that did
not have any therapeutic effect and tablets that did not contain any controlled release
mechanism.
In December 2010, Abbott Laboratories Inc., B. Braun Medical Inc., Roxane
Laboratories, Inc., n/k/a Boehringer Ingelheim Roxane, Inc. and Dey, Inc., Dey
Pharma, L.P., and Dey L.P., Inc., and affiliated entities paid $701 million to settle
FCA allegations that they engaged in a scheme to report false and inflated prices for
numerous pharmaceutical products knowing that federal health care programs relied
on those reported prices to set payment rates.
The departments also continued their successes in civil health care fraud enforce-
ment during FY 2011. Approximately $2.4 billion was recovered through civil health
care fraud cases brought under the False Claims Act (FCA). These matters includ-
ed unlawful pricing by pharmaceutical manufacturers, illegal marketing of medical
devices and pharmaceutical products for uses not approved by the FDA, Medicare
fraud by hospitals and other institutional providers, and violations of laws against
self-referrals and kickbacks. This marked the second year in a row that more than
27http://ww1.prweb.com/prfiles/2010/09/15/2375724/ForestPressRelease.pdf.

146 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
$2 billion has been recovered in FCA health care matters and, since January 2009,
the department has used the False Claims Act to recover more than $6.6 billion in
federal health care dollars.28
Fraud, waste, and abuse involving prescription drugs are areas of particular con-
cern. A study commissioned by the Pharmaceutical Care Management Association,
the national association representing America’s pharmacy benefit managers (PBMs),
notes that about $3 billion of the $300 billion spent each year on prescription drugs
is lost to these causes.29
Plan members as well as prescribers and retail pharmacies can all potentially be
involved in fraud, waste, and abuse.
17.5. Health care fraud judgments during 2011
In February 2012, federal authorities announced that they had recovered $4.1
billion in health care fraud judgments during 2011, a record high number that is up
more than 50 percent from 2009.While laudable, it is unfortunately still only a small
percentage of the estimated $70 billion to $234 billion that is lost annually to health
care fraud, waste, and abuse in the US.
This loss directly impacts both health care plan sponsors and their members.
For plan sponsors, health care fraud, waste, and abuse drives up the cost of health
insurance benefits, which increased a cumulative 138 percent between 1999 and
2010, far outpacing cumulative wage growth of 42 percent over the same period.
In FY 2011, HHS’ Office of Inspector General (HHS/OIG) excluded 2,662 indi-
viduals and entities. Among these were exclusions based on criminal convictions
for crimes related to Medicare and Medicaid (1,015); or to other health care pro-
grams (233); for patient abuse or neglect (206); or as a result of licensure revocations
(897). In addition, HHS/OIG imposed civil monetary penalties against, among oth-
ers, providers and suppliers who knowingly submitted false claims to the Federal
government. HHS/OIG also issued numerous audits and evaluations with recom-
mendations that, when implemented, would correct program vulnerabilities and save
program funds.
18. Abbott Labs in settlement of Off-label Promotion of Depakote
In May 7, 2012, Global Health Care Company Abbott Laboratories Inc. has pleaded
guilty and agreed to pay $1.5 billion to resolve its criminal and civil liability arising
28The HCFAC annual report can be found here, oig.hhs.gov/publications/hcfac.asp. For more infor-
mation on the joint DOJ-HHS Strike Force activities, visit: www.StopMedicareFraud.gov/. For more
information on the fraud prevention accomplishments under the Affordable Care Act visit: http://www.
healthcare.gov/news/factsheets/2012/02/medicare-fraud02142012a.html.
29Scott Campbell, The Fight Against Prescription Drug Fraud, Waste, and Abuse: How PBMs Can
Help. Employee Benefit Plan Review, August 2012.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 147
from the company’s unlawful promotion of the prescription drug Depakote for uses
not approved as safe and effective by the Food and Drug Administration (FDA), the
Justice Department announced. The resolution – the second largest payment by a
drug company – includes a criminal fine and forfeiture totaling $700 million and
civil settlements with the federal government and the states totaling $800 million.30
Abbott also will be subject to court-supervised probation and reporting obligations
for Abbott’s CEO and Board of Directors.
Abbott has pleaded guilty to misbranding Depakote by promoting the drug to con-
trol agitation and aggression in elderly dementia patients and to treat schizophrenia
when neither of these uses was FDA approved. In the agreed statement of facts, Ab-
bott also admitted that from 2001 through 2006, the Company misbranded Depakote
by marketing the drug to treat schizophrenia.31
This resolution is part of the government’s emphasis on combating health care
fraud and another step for the Health Care Fraud Prevention and Enforcement Action
Team (HEAT). One of the most powerful tools in that effort is the False Claims
Act, which the Justice Department has used to recover more than $7.4 billion since
January 2009 in cases involving fraud against federal health care programs.With the
settlement announced today, the Justice Department’s total recoveries in False Claims
Act cases since January 2009 will exceed $10.2 billion. During this same time, the
department has secured $3.9 billion in criminal fines, forfeiture, disgorgement, and
restitution relating to violations of the FDCA.
19. The largest health care fraud settlement in U.S. history
In July 2, 2012 the Department of Justice announced that Global health care
giant GlaxoSmithKline LLC (GSK) agreed to plead guilty and to pay $3 billion to
resolve its criminal and civil liability arising from the company’s unlawful promotion
of certain prescription drugs, its failure to report certain safety data, and its civil
liability for alleged false price reporting practices, the Justice Department announced
today. The resolution is the largest health care fraud settlement in U.S. history and
the largest payment ever by a drug company.32
GSK agreed to plead guilty to a three-count criminal information, including two
counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate com-
merce and one count of failing to report safety data about the drug Avandia to the
Food and Drug Administration (FDA). Under the terms of the plea agreement, GSK
will pay a total of $1 billion, including a criminal fine of $956,814,400 and forfeiture
30Forbes, 5/10/2012. http://www.forbes.com/sites/erikakelton/2012/04/17/new-jj-ceos-ties-to-fraud-
case-show-jj-sees-no-need-for-a-cure/J&J needs a cure: new CEO allegedly had links to fraud.
31http://www.justice.gov/opa/pr/2012/May/12-civ-585.html.
32Court documents related to today’s settlement can be viewed online at www.justice.gov/opa/gsk-
docs.html.

148 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
in the amount of $43,185,600. The criminal plea agreement also includes certain
non-monetary compliance commitments and certifications by GSK’s U.S. president
and board of directors. GSK’s guilty plea and sentence is not final until accepted by
the U.S. District Court.
GSK will also pay $2 billion to resolve its civil liabilities with the federal govern-
ment under the False Claims Act, as well as the states.
As part of this global resolution, GSK has agreed to resolve its civil liability for the
following alleged conduct: (1) promoting the drugs Paxil, Wellbutrin, Advair, Lam-
ictal and Zofran for off-label, non-covered uses and paying kickbacks to physicians
to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent and Valtrex;
(2) making false and misleading statements concerning the safety of Avandia; and (3)
reporting false best prices and underpaying rebates owed under the Medicaid Drug
Rebate Program.33
GSK has agreed to pay $1.043 billion relating to false claims arising from this
alleged conduct. The federal share of this settlement is $832 million and the state
share is $210 million.34
20. Rising Fraud and the Fiscal Impact
The Health-Care Budget Fraudulent practices cost the U.S. Government billions
of dollars each year.
The current system to deter contractor fraud has proven to be insufficient and fails
to deter future misbehaviour.
For example, one of the world’s largest pharmaceutical companies, AstraZeneca
International, in 2003, pleaded guilty to felony charges of health-care fraud involving
state and federal health-care programs. In 2007, a federal district court judge in
Massachusetts found that AstraZeneca had engaged in deceptive practices.
Also in 2007, the United Kingdom’s Serious Fraud Office began an investigation
into AstraZeneca’s involvement in an alleged bribery scheme involving the United
Nations’ Oil-for-Food program and the Iraqi Government during the Saddam Hussein
regime. In 2008, a court in Alabama convicted AstraZeneca of defrauding the state’s
Medicaid system.In April 2010, AstraZeneca entered into a settlement agreement with
the Department of Justice (DoJ) amid accusations of off-label and illegal marketing.
A trial against AstraZeneca is scheduled in Arkansas in September 2012. The
story of AstraZeneca is not unique to the pharmaceutical manufacturing industry.
33http://www.phillipsandcohen.com/P-C-News/Whistleblowers-played-major-role-in-Glaxo-case-
leading-to-Glaxo-s-record-settlement.shtml.
34http://www.justice.gov/opa/pr/2012/July/12-civ-842.html. Court documents can be viewed online at
www.justice.gov/opa/gsk-docs.html.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 149
Many authors have identified a marked increase in repeat violators, evidenced by
an increased use of financial penalties.35
The high recidivism rates of pharmaceutical-manufacturer fraud places a signifi-
cant financial impact on the U.S. health-care budget. “U.S. spending on prescription
drugs has increased from $40 billion in 1990, to $234 billion in 2008.
Medicare Part D, a small section of the total health-care budget, spent an estimated
$48 billion for the 2010 fiscal year to cover its twenty eight million enrollees. 36
approximately $1.44 billion to $4.8 billion was lost to fraudulent claims in 2010.
When all other forms of government health-care spending on pharmaceuticals (such
as Medicaid, Tricare, and other programs) are taken into consideration, the financial
loss becomes staggeringly high. As health-care costs rise and the Government
struggles to deter repeat fraudulent behavior, something new must be done.37
21. Reducing pharmaceutical fraud
In 2012, Joshua C Snow write one article that provide a brief discussion of how
manufacturers contract with the Government and how they engage in fraudulent
practices. In light of recent reforms the article argues that the Federal Government
must consider serious options beyond Attorney General Holder’s task force to reign
in large manufacturers that consistently engage in fraudulent behaviour.The current
system to deter contractor fraud has proven to be insufficient and fails to deter future
misbehaviour.38
The article discuss how pervasive the recidivism problem is in contractor fraud
and attempt to quantify the fiscal impact of manufacturer fraud on the federal budget.
Then examine the Federal Government’s current attempts to combat fraud and identify
some of the weaknesses with the present system.
Finally, propose remedies to reduce fraudulent behaviour by manufacturers. As
conclusion write that Pharmaceutical-manufacturer fraud is a pervasive problem fac-
ing the Federal Government. It does not, however, need to be a permanent thorn
in the Government’s paw. Rather, a unified and concentrated effort to change cor-
porate culture through close monitoring and a government-wide improvement to
tracking methods will help to identify problem companies.In addition, the system of
35Sammy Almashat, M.D., M.P.H, Charles Preston, M.D., M.P.H, Timothy Waterman, B.S., Sidney
Wolfe, M.D “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical In-
dustry: 1991 to 2010”. Public Citizen’s Health Research Group. December 16, 2010. http://www.citizen.
org/hrg1924.
36Cong. Budget Office, A CBO Study: Effects of Using Generic Drugs on Medicare’s Prescription
Drug Spending (2010).
37Stephenson, C.E. (2005) Health care whistleblower suits are on the rise. Lawyers Weekly USA 21
November.
38Snow, Joshua C., “Reducing pharmaceutical fraud: in search of the cocktail prescription” Public
Contract Law Journal 41. 4 (2012): 1027–1046.

150 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
withholding profits from noncompliant manufacturers will help to encourage com-
pliance while allowing manufacturers to continue producing vital pharmaceuticals
for America’s patients.
22. Whistle blowing in the pharmaceutical industry in England, Canada, and
Australia
While whistle blowing in the United States is thus encouraged, such is not the case
in other countries.
Qui tam statutes have their roots in the English law dating back to the Middle
Ages. However, in the mid-twentieth century they came into disrepute in England
and were abolished in 1951. The Public Interest Disclosure Act now gives British
employees the right to claim compensation for loss of earnings and emotional stress in
connection with whistle blowing activities, assuming there is a good-faith disclosure
of organizational wrongdoing.
The Bribery Act 2010 replaces existing UK law with a new statutory code.In broad
terms the Act creates two primary offences – bribing and receiving a bribe. It also
introduces new offences of bribing a foreign public official and of failing to prevent
bribery. The new offence of failure to prevent bribery is likely to be of greatest
concern to companies as it will be a strict liability offence, under which companies
will be liable unless they can show that they had adequate procedures in place to
prevent the offending conduct. Many countries (including the UK) have signed up
to the International Convention on Combating Bribery of Foreign Officials (OECD
Convention). The ABPI has stressed the value of compliance with the ABPI’s
Code of Practice (“ABPI Code”). The Association of the British Pharmaceutical
Industry (“ABPI”) and its Code of Practice administrative arm, the Prescription
Medicines Code of Practice Authority (“PMCPA”), developed a Memorandum of
Understanding with the Serious Fraud Office (“SFO”) to clarify which agency is
likely to be responsible for enforcement when a Code breach also involves a potential
breach of the UK Bribery Act.
Beyond UK shores, the pharmaceutical industry can to a like degree look to the
EFPIA Code and the IFPMA Marketing Code for guidance.
In Canada, whistle blowing is nominally praised as an honorable undertaking, and
there is even some effort to protect whistleblowers from retaliation. Nonetheless, it
is not rewarded monetarily, nor are the protections for whistleblowers absolute.
In Australia, at present whistle blowing is neither rewarded nor universally protect-
ed, and the personal detriment has included retaliation, harassment, lawsuits, poor
performance reviews, and even termination. A House of Representatives committee
is currently looking into legislative reform in Australia to address the protection of
civil servants who blow the whistle on corporate wrongdoing.
Despite the passage of numerous pieces of whistleblower legislation in the United
Kingdom and other common law countries, such as Canada and Australia, and even

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 151
Europe and Asia, the enforcement of the whistleblower laws and the protections they
offer have been notoriously minimal.
Given those minimal protections, whistle blowing without qui tam-like incentives
and protections has been a largely ineffective tool to ferret out the pharmaceutical
abuses and exact meaningful penalties.39
23. The Code on Interactions with Healthcare Professionals
The annalist and the news papers condemn the disconnect between the self-serving
proclamations of “high ethical standards” and the reality of pharma’s conduct. De-
spite the prosecutions, huge fines and bad publicity, too many pharma companies
have failed to change their ways.
The Pharmaceutical Research and Manufacturers of America (PhRMA), claims
its members are “committed to following the highest ethical standards and al le-
gal requirements,”. PhRMA members developed the “Code on Interactions with
Healthcare Professionals,” which states that:
“Ethical relationships with healthcare professionals are critical to our mission
of helping Patients . . .An important part of achieving this mission is ensuring
that healthcare professionals have the latest, most accurate information available
regarding prescription medicines.”40
But the conclusion it is clear: It’s time for actions; not more words.
It is very important for the sector react whit efficacy. Its it one challenge for the
companies and for preserve the huge historical contribution in the health.Innovative
prescription medicines and treatments are saving lives and giving patients new hope
for a healthier future. Innovative research by companies is giving patients better
healthcare choices. Find out how innovative new medicines make it possible to
prevent or slow the progress of many diseases and avoid costly hospitalization and
invasive surgery. All this contribution are essential for every people and for the future
of the mankind. Our society need to preserve this patrimony and increase his efficacy.
In the European countries are too one Code of conduct for the Pharmaceutical
Industries. The European Federation of Pharmaceutical Industries and Associations
(EFPIA) is the representative body of the pharmaceutical industry in Europe.In June
2011 was amended “The EFPIA HCP Code on the Promotion of Prescription-Only
Medicines to, and Interactions with, Healthcare Professionals”.41 The EFPIA Code
39Sylvester James Boumil, Ashiyana Nariani, Marcia M. Boumil and Harris A. Berman, Whistleblowing
in the pharmaceutical industry in the United States, England,Canada, and Australia, Journal of Public
Health Policy (2010) 31, 17–29.
40Code on Interactions With Healthcare Professionals. (PhRMA) http://www.phrma.org/sites/default
/files/108/phrma marketing code 2008.pdf.
41The EFPIA HCP Code on the Promotion of Prescription-Only Medicines to, and Interactions with,
Healthcare Professionals. http://www.efpia.eu/sites/www.efpia.eu/files/EFPIA%20Code Promotion
HCP - 11.06.14 FINAL EDITING 07-08-11-mcp-20110630-002-EN-v1 1.pdf.

152 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
reflects the requirements of Council Directive 2001/83/EC, as amended, relating to
medicinal products for human use. The Code fits into the general framework estab-
lished by the Directive, which recognises the role of voluntary control of advertising
of medicinal products by self-regulatory bodies and recourse to such bodies when
complaints arise.
The EFPIA Code seeks to ensure that pharmaceutical companies conduct pro-
motion and interaction with, healthcare professionals in a truthful manner, avoiding
deceptive practices and potential conflicts of interest with healthcare professionals,
and in compliance with applicable laws and regulations.
The Code thereby aims to foster an environment where the general public can be
confident that choices regarding their medicines are being made on the basis of the
merits of each product and the healthcare needs of patients.
EFPIA encourages compliance with the letter and spirit of the provisions of the
International Federation of Pharmaceutical Manufacturers and Associations (IFPMA)
Code of Pharmaceutical Marketing Practices, where applicable.
24. Healthcare fraud: A Europe-wide issue
In November 2006 was the first European Healthcare Fraud and Corruption Con-
ference held in London. The overriding message of the first European Healthcare
Fraud and Corruption Conference was that European countries should work together
to tackle healthcare fraud and corruption, so the resources invested in the sector
benefit patients, not fraudsters.42
Explaining the rationale behind the conference, Laura Davies, from the NHS
Counter Fraud and Security Management Service, said around one trillion was spent
on healthcare in Europe annually. An estimated 3–10 per cent of this sum, or 30–
100 billion, was potentially being lost to fraud every year, she warned. Research
conducted by the CFSMS had found most EU member states did not have counter
fraud units and there was no national approach to the work. This made it difficult
to measure the extent of the problem and find effective solutions, Ms Davies said.
Establishing the conference would raise awareness of the issue, build networks and
develop “joined-up action” to tackle healthcare fraud across Europe, Ms Davies said.
A former head of drug safety at the German medicines regulatory authority, Peter
Schonhofer, said the small number of new drug entities discovered since 1990 had
contributed to the problem. This shortage of new drug molecules had led to drugs
firms adopting a strategy of “pseudo-innovation”, Professor Schonhofer said.
This included falsifying clinical data, inventing diseases to sell “lifestyle drugs”
and buying medical experts and prescribers to extend the company’s market share,
42EHFCC Conference: Healthcare fraud: a Europe-wide issue, Chemist and Druggist (Nov 6, 2004):
38.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 153
he alleged. These issues could be tackled in a number of ways. Using an industry
code of conduct and external corruption ombudsmen, extending anti-corruption laws
to apply to medical personnel and professional and patient organisations, and fining
companies or individuals who failed to comply with regulations would help, he
suggested.
NHS CFSMS chief executive Jim Gee agreed that unlawful behaviour by drug com-
panies was a serious problem. “Healthcare is increasingly becoming multinational
and needs tackling as such”, he added. Joint working of EU member states would
help develop a common approach to the problem. Further, European co-operation
would result in huge financial savings, leading to better patient care and improved
public confidence in healthcare systems, Mr Gee declared.
One of the main outcomes of the conference was an agreement to set up a ‘centre of
excellence’ dedicated to tackling healthcare fraud and corruption across Europe. The
European Healthcare Fraud and Corruption Office will be a non- profit organisation,
and be responsible for: circulating information, best practice and intelligence to
partner organisations; researching new efficient methods to minimise fraud as quickly
as possible exchanging staff between organisations to develop skills and ways of
working; ensuring high professional standards are met.
25. The European Healthcare Fraud and Corruption Network (EHFCN)
The European Healthcare Fraud and Corruption Network (EHFCN) is the only
European organisation dedicated to combating fraud and corruption in the healthcare
sector across Europe. EHFCN was formally established in 2005 as a result of the
first pan-European conference held in London in October 2004. Its foundations lie
in the European Healthcare Fraud and Corruption Declaration agreed upon by its
delegates. Today, the network represents 18 member associations in 13 countries,
which provide healthcare services to millions of people in Europe.
Annual healthcare spending across the European Union totals approximately one
trillion Euros. It is estimated that approximately 56 billion Euros are lost every
year to healthcare fraud and corruption. EHFCN’s primary objective is to reduce
these unacceptable losses: lowering losses will help bring back money to healthcare
services for the benefit of every patient.
It is difficult to assess the amount lost to fraud, error and corruption in the healthcare
sector in Europe. In every country across the European Union, the vast majority
of staff and practitioners working in healthcare services are honest, hard working
individuals, who are committed to their national healthcare services.
This majority have to work together to ensure that the small minority, who are
intent on perpetrating fraud and diverting funds from frontline healthcare services
are stopped.
However, in 2010, repayments ordered, voluntary repayments and fines amounted
to approx. 9.3 million in Belgium. Actions to prevent ‘excessive’ behaviours led

154 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
to 398 million direct savings in France. In the Netherlands, health insurers found
366 cases of proven fraud, of an average of 17,088 per case. In Scotland, over £1.5
million were secured for the NHS in counter-fraud net savings and recoveries.
Fraud and corruption activities can take place in any healthcare systems, whether
they are predominantly public or private, well funded or poorly funded, and in any
area of healthcare delivery.
Spanish Minister of Health, disclosed that 200.000 active workers buy medicines
with a pensioner health card. The healthcare sector appears to be particularly vul-
nerable to corruption. The large amounts of money involved and the complexities of
many healthcare systems play a role as well as the fact that there are many processes
with high risks of bribery. Fraud and corruption activities can take place in any area
of healthcare delivery.
The following processes stand out as having a high inherent risk of corruption:
revision of services by medical personnel; human resources management; drug selec-
tion and use; procurement of drugs and medical equipment; distribution and storage
of drugs; regulatory systems, and budgeting and pricing.43
Fraud and corruption in the healthcare sector are often hard to detect. To give
an accurate picture of the extent of the problem at European level is even harder as
heathcare systems differ from country to country. Additionally, offices and units to
counter healthcare fraud have only been established recently in some countries and
do not even exist in others. However, here are some facts, figures and statistical
information about the extent of the problem.
Annual healthcare spending across the 27 countries of the European Union totals
approximately one trillion Euros. Between 3% and 11% of GDPs are spent on
healthcare in European countries. It is conservatively estimated that approximately
56 billion Euros are lost annually to fraud and error alone within the European Union.
Considering the most conservative estimate only, the price tag to healthcare fraud and
corruption is of at least 80 million every day in the European Union. Conservative
estimates of healthcare fraud losses total more than the GDP of European countries
such as Latvia, Estonia, Cyprus or Iceland (World Bank figures).44
26. The pharmaceutical industry and corporate responsibility in EU
In October 2011, the European Commission published a Communication on a
new policy on corporate social responsibility. It states that to fully meet their so-
cial responsibility, enterprises “should have in place a process to integrate social,
environmental, ethical and human rights concerns into their business operations and
43The European Healthcare Fraud Directory, NHS, 2006.
44Savedoff W, Hussman K, Why are health systems prone to corruption? Global Corruption Report
2006, Transparency International. http://www.ehfcn.org/fraud-corruption/facts-and-figures/.

Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud 155
core strategy in close collaboration with their stakeholders”. The European Com-
mission has launched “The Process on Corporate Social Responsibility in the field of
pharmaceuticals” in order to facilitate discussions on ethics and transparency of the
sector, and also on non-regulatory conditions for better access to medicines after their
marketing authorisation. Considering the contributions the pharmaceutical industry
can provide to the citizens, it is necessary to ensure that the strategies are in line with
the societal needs and that all partners exercise their responsibilities.
The Commission’s initiative on corporate responsibility in the pharmaceutical
industry, is based on the three pillars of transparency and ethics, access to medicines in
Europe (pricing and reimbursement), and access to medicines in developing countries
(particularly Africa). The Commission’s objective is to primarily address the lack of
trust between the public, governments and the pharmaceutical industry. One of its
expected outcomes is the publication of a List of Guiding Principles governing the
interactions between the different stakeholders.45
The pharmaceutical industry has taken up the challenge and is seeking to be the
first sector to come up with a corporate responsibility plan.
Sir Andrew Witty, CEO of GSK and President of EFPIA in one statement has
write that “The pharmaceutical industry’s reputation has come under fire concerning
the lack of transparency around its relationships with governments and the health
community, its pricing strategies, its impact on the environment and its actions in
developing countries around access to medicines. The industry recognises that it
needs to address these critical issues and build trust if it is to be sustainable in the
long term. The industry has a responsibility to deliver value for money to health
systems, which are often heavily funded by taxpayers, and vary enormously in their
ability to make healthcare affordable for their citizens”.46
The industry recognises the need to put its collaborations with other stakeholders
on a new basis. These relationships underpin progress in healthcare. At the same
time the industry is actively engaged in addressing the issues of perceived conflict
of interest and a lack of transparency. The pharmaceutical industry makes a huge
contribution to economic growth and employment in Europe. The European Union
counts more than 4 500 enterprises in this field, employing more than 600 000 people
and producing medicines to a value of some 190 billion.
Contacts between the key stakeholders must be more open to public scrutiny.
Collaboration with physicians is a crucial part of the innovation process and must be
protected by excluding unnecessary non-scientific activities. But these relationships
must be visible and transparent. And more open to public scrutiny. Building trust
and transparency are indispensable to ensuring adequate pricing and reimbursement.
Detailed rules for the promotion of medicines and interactions with healthcare
professionals, as well as patient organisations, are laid down in codes of conduct
45http://www.pif.fi/frontpage/pharmaceutical industry/corporate social responsibility.
46http://www.efpia-annualreview.eu/index.php?page=the-pharmaceutical-industry-and-corporate-
responsibility-more-than-a-nice-to-have.

156 Jos´e Luis Valverde / Corporate responsibility and pharmaceutical fraud
that are binding for EFPIA members. These codes address medicines promotion and
relationships with patient organisations. The codes were amended on 14 June 2011,
and came into force in their revised form as of 1 January 2012.During 2011, EFPIA
member associations have integrated this new standard into their national codes of
conduct.

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