Pfizer agreed to pay more than $490 million in a settlement over a misleading marketing campaign, but consumers will likely pick up the tab.
When Pfizer agreed to pay more than $490 million in a settlement this week over a false and misleading marketing campaign, pharmaceutical watchdogs may have been quick to celebrate. But when it comes to paying for costs associated with lawsuits and settlements against drug makers, consumers are likely to carry the tab.
The latest settlement comes after Pfizer advertised the drug Rapamune, which helps the body fight rejection of a donated kidney, as one that would do the trick for all organ transplants.The drug is produced by Wyeth, a company Pfizer absorbed in 2009.
In addition to marketing the drug for uses not approved by the Food and Drug Administration, the Justice Department ruled the company was offering bribes to medical professionals to increase sales.
According to The New York Times, the practice came into full view in 2010 after two former employees stood behind a lawsuit against the company.
The settlement isn’t an isolated incident for Pfizer. In 2009, the company settled a $2.3 billion lawsuit for advertising drugs for illnesses they were not approved to treat. In that case, the drugs in question were Bextra, which has since been removed from the market, and Geodon, an antipsychotic drug. Zyvox, an antibiotic, and Lyrica, which treats epilepsy, were also named in the settlement.
Pfizer also charged the government through Medicare and Medicaid for prescriptions inappropriately assigned to patients.
Essentially, Pfizer has been punished before when it comes to selling its drugs outside of the realm of the rules. At the time the $2.3 billion was handed down by the Justice Department to Pfizer, government attorneys revealed during a press conference that it was the fourth such settlement Pfizer had reached between 2002 and 2009.
“This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a pharmaceutical company puts profits ahead of patient health,” Assistant Attorney General Tony West said in a press conference, according to a 2009 Bloomberg Businessweek story.
It appears the lesson didn’t mean much to company executives.
Who makes up for mistakes, sales declines?
Despite the setbacks to the pharmaceutical company, the last few years have been good to Pfizer’s CEO. In 2011, he received an annual salary package of $17.8 million. By 2012, he was earning a solid $18 million, according to the company’s annual proxy filing, as noted in USA Today.
Forty-eight percent of “U.S. Pharma” sales growth since the 1980s has come from increased drug costs, according to Matthew Harper of Forbes magazine. In the last five years, 145 percent of U.S. sales growth was due to rising costs.
Even when sales are down, pharmaceutical companies rely on price increases to keep the profits rolling in. Pfizer’s Viagra is one example — from 2006 to 2009, profits in the U.S. increased from $796 million to $962 million. At the same time, prescriptions for Viagra dropped from 11.2 million to 9.9 million, according to Forbes.
According to CBS Money Watch, the price of Viagra increased 108 percent since its launch.
In a market where Pfizer’s products are often considered necessary, the demand for the company’s medication might decline, but it won’t be eliminated — unless its consumer base has access to alternative, cheaper drugs.
Pfizer’s effort to keep those low-cost drugs off the market has shown the company’s main priority isn’t necessarily to watch out for the pocketbooks of consumers, insurance companies or the government.
Manipulating market prices
Last month, the AARP released a report that tracked Pfizer’s efforts to reduce the impact of generic drugs that were competing against its Lipitor pill, an anti-cholesterol medication.
The report called out Pfizer for trying to manipulate the market and keep generics off the scene — both before and after its patent expired and the market for generics was opened.
After 14 years of patent protection, Pfizer attempted to maintain its monopoly on the prescription drug through what AARP refers to as “pay-for-delay” tactics, which essentially meant the company sparked a deal with potential generic competitors to keep the drug off the market.
According to the Federal Trade Commission, these types of agreements have cost taxpayers $3.5 billion.
At the same time, Pfizer was increasing the cost of Lipitor. The cost of the pill increased by 17.5 percent annually from 2006 to 2011, according to the AARP.
“The rising cost of prescription drugs remains a real challenge for consumers, particularly older Americans. These price increases can result in higher out-of-pocket costs or even lead a person to stop taking a needed medication,” Debra Whitman, AARP executive vice president for policy, strategy and international affairs, said in a press release. “Rising drug prices also increase spending in government programs like Medicare and Medicaid, and as spending increases so does the cost burden shouldered by beneficiaries and taxpayers.”
The report also indicated Pfizer offered rebates to pharmacy managers and insurance companies that would allow the drug to be sold at a reduced cost — so long as those same entities rejected selling the generic version.
“Strategies that hinder competition, like those reportedly employed for Pfizer, are harmful to consumers and all payers responsible for purchasing prescription drugs,” Whitman said. “We’re hopeful these strategies are not a model for the future.”
As an advocate for the seniors who make up a good portion of the prescription drug market, AARP is calling on Congress to take action. In the end, the organization wants more competition in the market in order to drive down costs.
Yet not everyone is convinced that going after the drug companies is the answer to driving down prices. Others claim “frivolous” lawsuits are to blame for rising costs, choosing instead to focus on the legal dilemma rather than cost manipulation.
Pfizer isn’t alone
According to KPMG International, pharmaceutical companies have paid billions of dollars in federal lawsuit settlements over the last decade, outpacing the defense industry in terms of violations of the False Claims Act.
“These increases in litigation and fines have had a substantial impact on the reputations and balance sheets of major players in the industry,” a KPMG International publication states.
It also has an impact on cost for consumers. In 2006, the Heartland Institute, a conservative think tank, highlighted a report from the Manhattan Institute that cites “frivolous” lawsuits as a top factor in rising health care costs, pharmaceutical costs included.
In the article, Heartland points to the drugmaker Merck and $50 billion in lawsuits related to the drug Vioxx, an anti-inflammatory medication linked to more than 25,000 heart attacks and thousands of deaths.
“Such figures are astronomical in comparison with these companies’ individual budgets, representing nine to twelve times each company’s annual research and development costs,” the Manhattan Institute report states. “In fact, since each drug was widely used for only about four years, the approximate annualized liability cost of these two drugs comes to almost $18 billion — equivalent to 10 percent of annual revenues for the pharmaceutical industry as a whole.”