At least a dozen major drug and device makers are under investigation by federal prosecutors and securities regulators in a broadening bribery inquiry into whether the companies made illegal payments to doctors and health officials in foreign countries.
In previous investigations, federal officials have charged that some companies made these kinds of payments to encourage doctors abroad to order or prescribe their products. In the United States, companies routinely hire doctors as consultants to market drugs and devices to their colleagues and other health professionals at medical conventions and small gatherings. Such consulting arrangements are legal in the United States as long as the companies do not pay doctors directly to write prescriptions for their products.
But in much of the rest of the world, doctors are government employees. And even consulting arrangements that would be considered routine in the United States might violate the Foreign Corrupt Practices Act, particularly if the payments are outsize or the arrangements are not disclosed to the governments.
Of even greater concern to prosecutors in the United States are unusually large payments made to foreign doctors who oversee the growing number of clinical trials that drug and device makers conduct abroad, according to Kirk Ogrosky, a former top federal prosecutor who now represents drug and device makers at a Washington law firm.
More than 80 percent of the drugs approved for sale in 2008 involved trials in foreign countries, and 78 percent of all people who participated in clinical trials were enrolled at foreign sites, according to a recent investigation by Daniel R. Levinson, the inspector general of the Department of Health and Human Services. Medical ethicists have long worried that many of these trials are conducted in countries that federal auditors rarely visit and where research controls may be scant.
Now, prosecutors are investigating whether the payments made to doctors who conducted these studies abroad were appropriate. If evidence shows that such payments have influenced the results of some clinical trials, prosecutors will be inspecting the trials closely, Mr. Ogrosky said. An article about the inquiry appeared Friday in The Financial Times.
Last month, a federal drug official reported that he found repeated instances in a landmark clinical trial of Avandia, a controversial diabetes medicine, in which patients taking Avandia appeared to suffer serious heart problems that were not counted in the study’s crucial tally of adverse events. Many of the study’s trial sites were in foreign countries, and the study is a main reason that Avandia remains on the market in the United States. Government officials have not accused GlaxoSmithKline, the trial’s sponsor, of fraud.
“At the Justice Department, investigations that involve allegations of patient harm rise straight to the top and will attract the immediate attention of the F.B.I.,” Mr. Ogrosky said.
The pharmaceutical industry may be more vulnerable to such investigations because its representatives overseas work on a daily basis with officials or doctors employed by state health systems.
Because pharmaceutical companies “are in the health care sector and because, in so many foreign countries, heath sector employees could be considered foreign officials, there is a heightened risk there,” said Jay Darden, a Washington lawyer and former federal prosecutor who specialized in health care and foreign corrupt practice cases. But, he said, just because some companies have publicly disclosed that they are under investigation does not automatically mean they have violated the foreign bribery law.
Indeed, a number of drug makers and medical device companies have reported in recent regulatory filings that they are under investigation for possible violations of the Foreign Corrupt Practices Act.
In a regulatory filing earlier this month, for example, Merck said it was cooperating with a federal investigation seeking information about the company’s activities in a number of countries.
Johnson & Johnson said in a regulatory filing that it had voluntary disclosed to federal agencies that company subsidiaries abroad may have made improper payments in connection with the sale of medical devices in two countries.
Eli Lilly said it was cooperating with a federal investigation into the activities of subsidiaries in Poland and other countries.
Meanwhile, the device maker Medtronic said it was cooperating with a federal investigation into the company’s activities in a number of countries, including Greece, Poland, Germany, Turkey, Italy and Malaysia. The device maker Zimmer also said it was the subject of federal investigations in connection with the sale of its products in a number of foreign countries.
In a speech in November, an official at the Justice Department alerted drug makers that the agency would be focusing on the drug industry.
“In some foreign countries and under certain circumstances, nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a ‘foreign official,’ ” as defined by the Foreign Corrupt Practices Act, Lanny A. Breuer, the assistant attorney general for the agency’s criminal division, said in the speech. “The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process.”
The federal inquiry is part of a broader reassessment of the financial relationships between medical product companies and doctors, who even in the United States serve a government procurement role when they order drugs or devices for patients whose care is paid for by Medicare, Medicaid or another government health program.
Federal law will soon require companies to publicly disclose consulting payments made to doctors; some companies have already started making information about such payments public. A number of medical schools and professional medical societies have recently issued rules banning or restricting some of these financial arrangements.
Nearly a dozen companies have already settled foreign bribery charges with prosecutors in a string of cases that started in 2002 with a settlement by Syncor. The company paid a relatively modest fine of $2.5 million to resolve criminal and securities charges that the company used gifts, inflated invoices and improper referral payments to encourage doctors in state-owned hospitals abroad to order company products and send patients to company-owned imaging centers.
Last year, Novo Nordisk, a Danish company, agreed to pay a $9 million fine to settle charges that it had paid former government officials in Iraq to obtain government contracts to provide insulin and other drugs. Novo paid the former Iraqi government about $1.4 million by inflating the price of its contracts by 10 percent before submitting them to the United Nations for approval, according to a Justice Department press release.
Since the fines paid so far are relatively modest, the current federal inquiries into possible foreign bribes may end up having a larger impact on the marketing strategies of medical product makers than on their bottom lines.
Even so, Mr. Darden, the former Justice Department official, said drug company executives would do well to remind their foreign subsidiaries not to bribe local officials or doctors.
“They should set a tone at the top that makes it clear to a company’s international sales force that these types of payments are unacceptable,” he said.
By GARDINER HARRIS and NATASHA SINGER
Published: August 13, 2010
New York Times
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