Pfizer's $2.3 Billion Mistake

Crime doesn't pay, especially if you're the world's largest drug company. That's the message from government fraud fighters.

In a case that sets a new standard for drug companies' relationships with doctors, Pfizer Inc. pled guilty to a criminal violation and settled other charges with the U.S. for $2.3 billion today.

The settlement, the biggest ever for a health care fraud case, centered on Pfizer's promotion of drugs for unapproved uses, a practice known as "off-label." Doctors often prescribe medicines to treat maladies even if those drugs aren't specifically approved by the Food and Drug Administration for that particular condition. It's not illegal for docs to do that, but it's against the law for drug companies to encourage it. Pfizer was fingered for promoting it.

In the case of Pfizer, the company admitted that it promoted anti-inflamatory drug Bextra for other uses even though the FDA wouldn't approve them because of safety concerns. (Bextra has since been taken off the market.) Pfizer settled similar charges related to other drugs and resolved allegations that it paid kickbacks to doctors for prescribing medicines for these various conditions.

The announcement makes it clear that the feds won't stand for any runaround of their authority. The size of the fine, the criminal plea, and disclosures Pfizer agrees to make as part of a "corporate integrity agreement" all signal that the government isn't going to tolerate such practices.

"The government sent a very strong message to the pharmaceutical industry that they have to pull back from those type of discussions with physicians," says T. Reed Stephens, a former Justice Department lawyer who now represents pharmaceutical companies in fraud cases.

In addition to the fines, Pfizer agreed to divulge information about its relationships with physicians who conduct clinical trials for experimental drugs. Such information was considered proprietary in the past.

"It sets a new standard for transparency for pharmaceutical companies in terms of financial relationships they have with physicians who are prescribing their products," adds Stephens, a partner with McDermott Will & Emery in Washington.

Eli Lilly & Co. settled a similar complaint in January for $1.4 billion stemming from promotions of its antipsychotic drug Zyprexa. Both the Pfizer and Lilly settlements were started under the Bush administration, but today's announcement shows President Obama's Justice Department is going to be equally vigilant, Stephens says. The cases were also the result of whistle-blower lawsuits, meaning the companies were turned in by insiders. Pfizer previously announced the amount of the settlement but didn't disclose details.

"The whole issue of off-label use became sort of a very trendy thing," says Timothy Ghriskey, chief investment officer of Bedford Hills, New York-based Solaris Asset Management, which invests in health stocks but doesn't own Pfizer. "It's something pharmaceutical companies need to stay away from at any cost."

Multiple government investigators were involved in today's case. Judging by their statements, you see that the government folks aren't fooling around. Pfizer squandered government dollars that paid for these medicines through Medicare, the officials charge. Eleven fed officials weighed in to condemn the drugmaker.

“Such blatant and continued disregard of the law will not be tolerated,” said Mike Loucks, acting U.S. Attorney for the District of Massachusetts.

Added Tony West, assistant attorney general for the civil division: “Illegal conduct and fraud by pharmaceutical companies puts the public health at risk, corrupts medical decisions by health care providers, and costs the government billions of dollars. This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a pharmaceutical company puts profits ahead of patient welfare.”