Double standard for big pharma bribes

By Shelley DuBois, reporter


FORTUNE -- Legally, of course, companies can't bribe anyone to do anything, whether the kickback is taking place on domestic or international grounds. But the act that guides the Department of Justice's international jurisdiction -- called the Foreign Corrupt Practices Act (FCPA) -- specifically prohibits bribery to officials of foreign governments to procure business.

That law, however, creates a strange quirk in the system, thanks to the predominance of state-run health care world wide: many doctors in other countries are considered government employees. Thus, the DOJ has launched several investigations into the world's largest pharmaceutical companies for FCPA violations. If any of these companies are found guilty of bribery, it could be a good opportunity for the DOJ to take a fresh look at routine interactions between doctors and drug companies back here in the United States.

One of the big hurdles in FCPA investigations is proving straight bribery: I give you x dollars, you give my company a big contract or order a lot of my product. Most pharmaceutical companies don't cut checks to doctors with the explicit demand that they prescribe certain drugs. But they do cut checks to them, here and abroad, for medical conferences, meals, flights, research and speaking engagements.

Even though doctors still receive a significant amount of information about the medications they are prescribing straight from drug representatives, these transactions aren't considered, under current interepation of the law, to be bribes. It's difficult to legally prove a link between, say, buying flights for doctors to attend meetings and influencing them to push one brand of drug over a different one, or that they prescribe drugs they otherwise wouldn't. Under the FCPA, investigators have to prove corrupt intent in order to accuse companies of wrong-doing. Evidence for "intent" is only available in egregious examples of bribery.

That's exactly what spurred the need for the FCPA in the 1970s. SEC investigations turned up $300 million in bribes that US companies had paid to foreign government officials. So in 1977, the Department of Justice set up the FCPA as a guideline for companies dealing with foreign officials. Basically, the act states that companies can't pay them for anything that would give their business an edge.

But there are nuances to the physician-pharma relationship that only big scandals tend to bring out. Take Merck's anti-inflammatory drug Vioxx, pulled from the market in 2004 for increasing patients' risk of a heart attack. In 2005, U.S. Representative Henry Waxman published an article in the New England Journal of Medicine, partially blaming the Vioxx scandal on the fact that doctors get so much of their information about new drugs from representatives employed by the company making them.

It's a common argument. Doctors and pharma critics made similar claims following the recent FDA investigation of GlaxoSmithKline's diabetes drug Avandia, which has been linked to increased risk of heart attacks and strokes in patients. Even though GSK debated the risks internally, they didn't present their full findings to the FDA, and didn't alter their marketing program to doctors or the public. But there's still no clear-cut way to launch an investigation into this -- it's such a mess that the FDA also withheld data from the public, according to TIME.

The current DOJ probe is investigating possible bribes of foreign officials from Bristol-Myers Squibb (BMY, Fortune 500), Eli Lilly (LLY, Fortune 500), AstraZenca (AZN), and Merck (MRK, Fortune 500), among other pharmaceutical companies and manufacturers of pharmaceutical devices. Just because the companies are being investigated doesn't mean they've done anything wrong. And many of the companies have been forthcoming about investigations. One of which is Merck, which might have decided to be so open about the investigation because it's already on high alert for previous conduct.

The Department of Health & Human services can enter into a corporate integrity agreement, or CIA, with any company. As part of the agreement, the company promises to become more transparent and straighten up and fly right. Merck has a corporate integrity agreement with the government. Other big drug companies on the CIA list include Pfizer (PFE, Fortune 500), AstraZeneca and Eli Lilly.

Still, pharma companies get a lot of legal legroom. The Department of Health and Human Services offers guidelines about how pharmaceutical companies should behave when dealing with the public and doctors, in the form of the Compliance Program Guidance for Pharmaceutical Manufacturers. Companies are encouraged to develop ethical practices based on the document, but legally, it's a mere suggestion.

These current probes could turn up real legal allegations and lead to big settlements. Critics argue the DOJ and Obama administration are taking away companies' ability to do business abroad by cracking down this way, but in fact, by more closely monitoring American businesses' overseas behavior, we're becoming better members of the international community.

More importantly, as the results of the investigations are revealed, it will be informative to see whether big pharma is actually engaged in underhanded behavior, or if it's just been snagged in a law that creates a double standard for its business practices -- one that says it's ok for companies to wine and dine doctors in the US, but illegal for it to do the same for doctors abroad. The results can and should raise the question of whether an overhaul of the ethics under which pharmaceutical companies interact with doctors in the US should be next on the regulatory reform agenda. To top of page