Drug Company CEOs: Rewarded For Illegal Acts?

In 2010, Public Citizen published a report documenting the scale of 20 years of illegal pharmaceutical industry activity. We updated this report in 2012, finding that the U.S. criminal and civil penalties paid by this industry rose more than six-fold over the last decade, from a total of $1 billion in 2003 to more than $6 billion by mid-July of 2012.

The size of these large penalties is dwarfed by the profits garnered in part from the illegal activities behind them. For this reason, and because no major drug company executive has ever been jailed for such criminal activities, drug companies have, de facto, adopted illegal behavior as part of their business model.

With any successful business model comes a reward for the CEOs steering their ships into profitable waters. Building on our analysis, the health advocacy group Health Care for America Now (HCAN) recently examined the increase in salaries of the CEOs of drug companies over the same time period of 2003 to 2012, during which penalties for illegal industry actions increased so significantly.

HCAN found that the compensation for the CEOs of the 11 largest pharmaceutical companies rose from a total of $75 million in 2003 (with an average of $6.8 million per CEO) to $200 million in 2012 (with an average of $18 million per CEO).

Few would deny that drug companies develop some important and useful products; high CEO salaries compensate such endeavors. But these CEOs also oversee companies that fraudulently overcharge the government via Medicare and Medicaid, criminally withhold important safety information from the Food and Drug Administration (FDA), illegally promote products to treat diseases for which they are unapproved (off-label promotion) and engage in other illicit activities that understandably erode the public’s health, its pocketbook and its trust in the industry.

Dramatically increased CEO compensation in an era of flourishing illegal activity inverts the basic concept of rewarding beneficial activities and punishing harmful ones. When it comes to doling out rewards to CEOs, the financial wellbeing of a company and its stockholders clearly overrides the physical and financial harm done to the public at large.

The former chief litigator in the FDA’s Office of General Counsel, Rick Blumberg, once said that “unless the government shows more resolve to criminally charge individuals — at all levels in the corporate hierarchy — …we can not expect to make progress in deterring … off-label promotion.”

And unless penalties are greatly increased and CEOs go to jail instead of reaping enormous financial gains while illegal activities are occurring, the significant physical and financial harm done to the public by the pharmaceutical industry will continue unchecked.