Record Year for Health Care Fraud

Pharmaceutical companies have paid a record $6.6 billion dollars so far this year to settle claims of fraud against Medicare, Medicaid and other taxpayer funded programs, according to a new report by the advocacy group Public Citizen.

The worst offenders were GlaxoSmithKline, Johnson & Johnson and Abbott Laboratories, which were responsible for about two-thirds of the fines paid to federal and state governments.

Despite the massive scale of fraud and penalties, which are expected to reach $8.3 billion by the end of 2012, most states have yet to launch investigations on their own, according to Public Citizen. Overcharging state health programs, mainly in the form of drug pricing fraud, was the most common violation

“It should come as no surprise that states facing Medicaid budget shortfalls are finally deciding to root out fraud that likely has cost their taxpayers billions of dollars over the years,” said Dr. Sammy Almashat, the study’s lead author. “What this new report unequivocally shows is that those states that have chosen to hold the pharmaceutical industry accountable have largely seen their enforcement efforts pay for themselves.”

Kentucky, Arkansas, Louisiana, South Carolina and Texas have recovered over $2.3 billion in penalties since 1991. Seventeen states recouped the cost of their fraud enforcement budgets with money from the settlements.

“On a federal level, financial penalties still continue to pale in comparison to company profits and a parent company is only rarely excluded from participation in Medicare and Medicaid for the illegal activities, which endanger the public health and deplete already overstretched taxpayer-funded programs,” Almashat said in the report.

In July, GlaxoSmithKline (NYSE: GSK) agreed to pay $3 billion, the largest health care fraud in history, to resolve claims that it illegally paid kickbacks to physicians and marketed multiple medications, including the diabetes drug Avandia, for off-label uses.

Abbott Labs (NYSE: ABT) agreed to pay $1.5 billion to settle similar charges, while Johnson & Johnson (NYSE: JNJ) agreed in principle to pay $2.2 billion to resolve allegations that it paid illegal kickbacks to increase sales of its antipsychotic medication, Risperdal.

Fines and penalties during all of 2011 reached $2.5 billion, but they represented only a fraction of the drug companies’ profits. Glaxo alone reported about $8.4 billion in net income during 2011.

Glaxo: “Different era” for company

“The settlements Glaxo has entered into with the U.S. government and various states originated in a different era for the company,” the company said in an email to Bloomberg. “We have taken action at all levels in the company to ingrain a culture that aligns with our values and puts patients first, acts transparently, respects people inside and outside the organization and displays integrity in everything we do. We have also fundamentally improved our procedures for compliance, marketing and selling.”

Health care fraud settlements have risen since President Obama took office, with federal and state governments resolving 143 cases since 2009. That’s twice as many settlements, for more than six times as much money, as in the previous 18 years combined, according to Public Citizen.

To discourage further fraud, the watchdog group called for more criminal prosecution of company executives. It also supported legislation by Sen. Bernie Sanders (I-Vermont), which would strip patent protection from drug companies found guilty of fraud.

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