Monday, February 02, 2009

Pfizer Settles (For a Mere $2,300,000,000)

Last week, in thee Wall Street Journal, Ron Winslow reported on this little item that slipped out at the time the giant Pfizer/ Wyeth merger was announced (see our previous post here):

In a disclosure nearly drowned out by news of its $68 billion acquisition of Wyeth, Pfizer Inc. said it agreed to pay $2.3 billion to settle a federal investigation into its alleged off-label marketing of the now-withdrawn painkiller Bextra.

The settlement, which requires the approval of a federal judge, would be the largest ever paid by a drug company to resolve alleged marketing missteps. It easily eclipses the $1.4 billion Eli Lilly & Co. agreed to pay earlier this month to settle similar charges related to its antipsychotic medicine Zyprexa.

Pfizer mentioned the settlement in two sentences in a news release about its earnings. The $2.3 billion charge it took for the deal -- the New York company described the figure as 'pretax and after tax' -- is the main reason its fourth-quarter net income fell 90% to $266 million from $2.72 billion a year earlier.

Pfizer released its earnings at the same time it announced an agreement to acquire Wyeth to form a pharmaceutical behemoth that would have annual revenues of more than $70 billion.

On Monday, Pfizer declined to elaborate on the settlement. A spokeswoman for Michael Sullivan, the U.S. attorney in Massachusetts who led the probe, declined to comment.

The FDA approved Bextra to treat arthritis, rheumatoid arthritis and menstrual pain. It isn't clear what off-label uses Pfizer's marketing of Bextra allegedly involved.

So far, I have found no other details about this in the media. Of course, it's merely a $2.3 billion settlement. It is just amazing that something this big can produce so few echoes. Ah, but that is the anechoic effect, again (see this post).

We have posted about numerous settlements of charges of misbehavior by drug, device, insurance and other health care organizations. Stacking them all up suggests the magnitude of bad behavior by the leaders of health care organizations. Yet it's not clear that all these monetary penalties are discouraging bad behavior.

In some cases, like this one, it is not immediately clear what bad behavior the settlement addressed. Without knowing what actions might cause monetary loss, it is hard to avoid such actions in the future.

In almost all cases, the monetary penalties accrue to the organization as a whole, not to the individuals whose behavior incited the settlement. And I have not so far ever heard of a case in which the organization which has to pay a settlement turns around and enforces a penalty upon the responsible leaders. Thus, the deterrent effect, even of large penalties, is thus diffuse. An executive, knowing that bad behavior may increase short term profits, and hence may markedly increase his or her compensation in the short run, may be undeterred by the threat of a future settlement that he or she does not have to pay. Instead, the settlement may come out of the pockets of stock-holders, employees as a whole, customers, clients, or patients, or the public.

If we want to prevent health care leaders from continuing "childish" behaviors, allowing health care to "spin out of control," (as per President Obama' inaugural address, see post here), we must do a better job of enforcing negative consequences, as the mother of any five-year old will tell us.


Bernard Carroll said...

One response to this kind of corporate indictment is to deny them access to professional corporations. A few years ago I proposed this sanction:

Bernard Carroll

David Hamilton said...

As it turns out, our pharma blogger Jim Edwards was all over this settlement the day before the WSJ story ran:

* Pfizer's Wyeth Buy Eclipses $2.3B Bextra Troubles; 19,000 Layoffs To Come

* How Pfizer Hid a $2.3B Bextra Settlement In Plain Sight

So not everyone was ignoring it....

Best, David Hamilton
Sr. Editor, BNET Industries
Writer, BNET Healthcare