A Harder Pill to Swallow: Evolving Legal Frameworks for Holding Pharma Accountable

Abstract

Pharmaceutical fraud costs American taxpayers and patients millions of dollars and has devastating consequences for both public health and personal well-being. The Department of Justice has made steady progress in expanding its fraud deterrence programs and utilizing whistleblowers to collect financial losses. Enforcement in the pharmaceutical sector has historically hinged on financial penalties through the False Claims Act and Anti-Kickback Statute, but the lack of accountability and avoidance of full penalties available has left some to conclude there is a gap between economic recovery and full justice. This article examines the role of current enforcement incentives and how emerging patterns of individual accountability and new settlement mechanisms could change the landscape of pharmaceutical fraud enforcement moving forward.

I. Introduction

Pharmaceutical companies play an integral and infinitely complicated role in the American Healthcare system. At their best, they are responsible for investing the capital, resources, and data necessary to drive medical innovation and develop the vital diagnostics and treatments that ensure our health and consistently improve quality of life. Yet, the same industry that is built on the idealistic promise of bettering patient care has also engaged in extensive profit-driven criminal conduct with devastating consequences. In 2024 alone, the United States recovered $2.75 billion from Healthcare Fraud Enforcement.¹ This deceit not only harms patients financially, but it has caused an incalculable number of entirely preventable deaths and injuries.

It is difficult to balance the need for stricter enforcement with the desire to support rapid progress; however, the United States has developed an impressive framework for pursuing pharmaceutical fraud. The nation’s robust whistleblower programs and steep economic penalties for fraud violations have made it especially effective at identification and enforcement, settling billions of dollars in healthcare fraud cases annually.² The value of this enforcement methodology and its ability to incentivize conformity to the law can not be understated, especially considering the stake of public health at play. However, given the pervasiveness of fraud in healthcare and the toll on human health and life, the question arises whether financial restitution is truly enough. Recent pharmaceutical fraud cases have displayed a shift in perspective that widens the mandate of fraud convictions beyond economic concerns.

This article will explore one of America’s gravest cases of pharmaceutical fraud, Purdue Pharma’s criminal promotion of prescription opioids, in order to evaluate current enforcement mechanisms and developing enforcement trends. The first consideration is the role of individual actors within the corporate structure. Corporate fraud cases have traditionally focused on pursuing the company as a whole; however, current trends indicate that executives and participants in fraud will be held to an increasingly higher standard of responsibility and face new repercussions for failure to meet those obligations. A second — but less developed — trend is newfound scrutiny over the role of corporate settlements and whether the negotiation process can truly encapsulate the physical and social effects of pharmaceutical fraud.

II. The Current State of Pharmaceutical Enforcement

On October 9th, 2003 right wing radio host Rush Limbaugh took the air to publicly confess his ongoing struggle with opioid addiction and his forthcoming commitment to treatment.³ For years anecdotes of family members and neighbors hooked on opioids had become increasingly common among American public, but for the first time Limbaugh’s admission gave voice to the concerning pattern that gripped the nation.⁴ Opioid addiction has existed since the colonization, but it was the release of Oxycontin that led to the widespread addiction that is still seen today.⁵ Purdue engaged in an impressive marketing campaign that successfully deceived doctors about the true risks and strength of the medication which led to almost a decade of widespread product abuse. In further affront to its victims, the company attempted to directly blame addicts, claiming to both doctors and the public that only users with “addictive personalities” were at risk and therefore personally responsible, despite full awareness that the drug, regardless of any underlying genetic or psychological history, posed a threat of dependency for all users.⁶ Purdue brought in a revenue of near $35 billion as a result of the scheme. The death toll of the opioid epidemic currently stands at over 560,000 and is estimated to reach 1.8 million by 2030.⁷

In 2019, Purdue Pharma was charged on information alleging the company engaged in decades of illegal marketing practices and for its direct involvement in causing the opioid crisis.⁸ The False Claims Act and Anti-Kickback Statute were two integral regulations in this case, and serve as the foundation for most pharmaceutical prosecutions. Neither of them specifically refers to the damages or outcomes of pharmaceutical fraud, but they provide the government with the strongest precedent for seeking restitution.

The first count against Purdue was a violation of the False Claims Act (FCA), a federal regulation prohibiting companies from submitting fraudulent charges for government reimbursement.⁹ In promoting its product, OxyContin, a branded opioid medication, Purdue Pharma engaged in a targeted marketing campaign to encourage prescriptions that violated its FDA approved uses. The company covertly bribed prescribers by paying them exorbitant speaker fees, downplayed the dangers and FDA warning related to the product, and encouraged prescription outside of on-label uses, all of which contributed to millions of dollars worth of medicare claims. The FCA provides the government with the ability to pursue treble damages for each false claim filed as a result of Purdue’s actions, so it is no wonder why it is so integral to pharmaceutical regulation. Not only does this help restore the government’s losses, but it also provides a serious warning and risk to any company that may consider false promotion as a way of boosting short-term profits. This act also plays an especially important role in bringing forward cases of fraud due to its Qui Tam provision, which allows outside whistleblowers to sue on behalf of the government and aid in reclaiming lost funds without expending federal resources.¹⁰

The second count was a violation of the Anti-Kickback Statute (AKS), the regulation that criminalizes “remuneration” to prescribers, prohibiting companies from offering rewards or other unjustified payments for making product referrals.¹¹ One of the most common methods of covertly paying kickbacks is through Speaker Programs. From approximately 2009 to 2017, Purdue Pharma conspired with various Heath Care Professionals (HCPs) by offering them paid speaking positions for educational programs that far exceeded appropriate compensation, or Fair Market Value (FMV), for the activity. At face value, these are peer-to-peer learning opportunities where experienced providers can offer their insight on drug efficacy, and in what cases they should be utilized. However, Purdue’s speaker programs had little educational value and were largely an excuse to pay doctors large sums of money for their prescribing habits, thus triggering the status’s applicability in this case.¹²

In 2020, Purdue Pharma entered an industry-standard plea agreement to settle its criminal violations.¹³ This agreement included almost $6 billion in criminal and civil penalties, providing restitution for the amount defrauded from the government for false claims to Medicare, but failed to meet the full burden of treble damages. It did; however, have an important inclusion of dedicated funds towards opioid treatment centers and addiction support programs. Other than this unique inclusion, the settlement and charges reflect the common methods of pursuing action against pharmaceutical companies.

III. The Role of Individual Accountability

The False Claims Act and Anti-Kickback statute are no doubt immensely powerful tools for the government to effectively penalize pharmaceutical fraud. However, what seems to be lost in this economic focus toward recouping financial losses is the role of the individual. Corporations are not independent structures, autonomously making their own decisions, but the result of many individuals working together; individuals who are often highly intelligent and fully aware of their organization’s practices and immorality. Do those individuals not also have an obligation to protect the health and well-being of others, especially the executives who have been trusted to pioneer the healthcare industry?

The corporate veil has long shrouded the relationship between responsible parties and individual liability, but evolving legal practices have opened the door for an expanded view of executive accountability. The framework for personal accountability in FDA-regulated companies arises from U.S. v. Dotterweich.¹⁴ In 1943, Dotterweich, the president and general manager of Buffalo Pharmacal Company, was jointly charged with his business for purchasing and repacking drugs under an unapproved label. Despite the lack of evidence Dotterweich had any personal awareness or involvement with this scam, the court held:

“The offense is committed… by all who do have such a responsible share in the furtherance of the transaction which that statute outlaws… Congress has preferred to place it upon those who have at least the opportunity of informing themselves of the existence of conditions imposed for the protection of consumers before sharing in illicit commerce.”¹⁵

With this decision, the court set the precedent that prosecutors could pursue executives not only for direct involvement in fraud, but for merely being in a position with reasonable ability to prevent non-compliance. The Court did not attempt to define which classes of employees would be in a position of awareness – leaving it to the discretion of prosecutors and juries to decide – giving it the potential for wide applicability.¹⁶ Since this case, corporate officers have a higher responsibility of consumer protection under the FDCA, and can therefore be found liable for company actions purely because of that greater standard, regardless of any direct knowledge or involvement in the act.

Thirty years later, the Supreme Court reaffirmed and enhanced the precedent of individual responsibility for pharma executives in United States v. Park.¹⁷ This case revolved around a national grocery distributor, Acme Markets, Inc., charged with its President and CEO, Mr. Park, for shipping contaminated food across state lines. Park argued that, because he was not directly responsible for sanitation and merely oversaw the business as a whole, the precedent established in Dotterweich did not apply. By designating someone else responsible for that task, and instructing them to handle the FDA’s contamination concerns, he had fulfilled his responsibility under the FDCA.¹⁸

The Court did not agree. It found that delegating responsibility within the corporate structure does not constitute a sufficient duty of care, and instead, executives maintain responsibility for overall compliance even when it is not directly within their oversight. It further held that failure to ensure compliance is a sufficient basis for a misdemeanor offense, punishable by fine or imprisonment.¹⁹ Despite the existence of a strong precedent for individual prosecution arising from the Park Doctrine, it is rarely utilized. In fact, there have only been 13 cases since 2000 that have relied on this precedent, raising questions about where individual accountability truly stands in corporate offenses, and if it is effective at ensuring compliance.²⁰

In 2007, Purdue’s executives were separately charged for their role in the opioid crisis in one of the Park Doctrine’s first and most notable applications in pharmaceutical fraud.²¹ This initial case levied against Purdue included charges for three executives, all of whom were found guilty of misdemeanors under Park.²² They did not face jail time for their involvement, but they were placed on three years probation and owed millions in fines. While the Park Doctrine has previously received criticism for the harsh burden it places on individuals, this case cemented its necessity. When corporate fraud reaches a scale of such human devastation, as the opioid crisis has, the justice system has a responsibility to the public. In fact, in this instance there was more public criticism due to the lack of imprisonment for the convicted officers. As a result of this large scale atrocity, both public and legal opinion has shifted toward the view prosecutors could be even more liberal in applying Park precedent.²³

In the past decade, the Department of Justice has released a string of advisory opinions and memos that argue for a greater focus on individual prosecution. The Yates Memo, “Individual Accountability for Corporate Wrongdoing”, provided new guidelines for federal prosecutors that aim to ensure all individuals involved in a crime are thoroughly investigated.²⁴ Now, companies must provide all information about individuals involved in exchange for cooperation credit towards their settlements, investigations are focused on individuals from the outset of the investigation, and corporate resolutions can not provide individuals exemption from criminal or civil liability.²⁵ Half of all pharmaceutical cases that utilized the Park Doctrine have occurred since this memo was released, indicating that the DOJ is serious in its commitment to strengthening this principle.²⁶ So, while the use of the Park Doctrine and Dotterweich precedents may have been slow developing, pharmaceutical companies can expect their importance, and their own assumed risk, will only multiply in coming years.

Given the extent of fraud within the pharma industry, and the billions of dollars in revenue that major companies earn each year, some companies have adopted the view that fines and penalties are simply the cost of doing business.²⁷ Additional research indicates that current financial disincentives have yet to significantly reduce the underlying fraud rates.²⁸ Adding an element of individual prosecution further reinforces the government’s conviction to prevent these criminal acts. By expanding beyond economic penalties, prosecution for fraud is no longer an expected business risk, but a personal risk assumed by the leaders of the pharmaceutical industry making regulations much harder to ignore. Further integrating this approach and utilizing the full capacity of the Park Doctrine, serves as a powerful enforcement mechanism.

IV. Merits and Limitations of Corporate Settlements

IVa. Plea Bargaining in Pharmaceutical Cases

The original settlement that Purdue reached in 2020 was a Rule 11(c)(1)(C) plea agreement. Alternatively known as “C” pleas, these agreements shape the landscape of pharmaceutical regulation. The “C” plea originates from the Federal Rules of Criminal Procedure Rule 11 and gives prosecutors the authority to agree on a sentence with the defendant in exchange for a guilty plea.²⁹ The sentence in a “C” plea is binding on the Court, meaning if the court disagrees with any part of the settlement, the entire agreement is voided and the defendant has the opportunity to withdraw their guilty plea.³⁰

Both the government and defendants can benefit from this form of deal. It saves the defendant trial costs, public exposure, allows them a more direct say in what their punishment will be, and the power to negotiate for the best sentence. The strength of these pleas, and the reason they are so common in instances of white collar crime, is in their ability to induce cooperation.³¹ “C” pleas often include a cooperation credit, providing parties with a reduced sentence in exchange for their full disclosure of criminal activity during investigations. Given the incentive to hide the full extent of their criminal misconduct, this credit is important to completing a thorough investigation, determining the full scope of crimes committed, and gathering information related to the individual actors involved. Current legal thought largely views them as a “win-win” scenario in the prosecution of corporate fraud. The government gains cooperation, while corporations gain certainty. However, evolving legal thought, and the recent rejection of some corporate “C” pleas, highlight the areas in which these agreements fail and how their role may transform moving forward.

IVb. United States v. Aegerion

In the case of United States v. Aegerion, the company was accused of submitting false claims related to its product, Juxtapid.³² Juxtapid is an FDA approved medication for the treatment of HofH, a rare genetic disease that increases lipid and cholesterol levels. Given the rare nature of the disease, Juxtapid had low profit margins, a problem Aegerion sought to fix by expanding the product base. Its sales teams were instructed to promote Juxtapid use beyond its FDA approval, and encourage it as a treatment for high-cholesterol generally. This was in direct violation of the FDCA and risked liver damage to all of those falsely prescribed.

To settle their case, Aegerion and the United States agreed to a penalty of over $35 million dollars. $28.8 million would be allocated to restitution of false claims to Medicare, Medicaid, and TRICARE, with the remaining $6.2 million serving as a fine for criminal activity.³³ None of the original settlement was allocated to victims of the fraud. Aegerion additionally agreed to be bound by a Corporate Integrity Agreement (CIA). These agreements are another typical component of pharmaceutical fraud settlements, and contain many provisions aimed at ensuring compliance with the law moving forward.³⁴ This particular settlement follows the standard model for resolving a False Claims case in every regard, so why did the court reject this deal specifically?

In District Court Judge William G. Young’s decision, he wrote an ode of his concerns with Aegerion’s “C” plea. He first cites the lack of a pre-sentence report, thus obscuring the justification for the provisions of the agreement. He then questions the calculation of sentencing guidelines, especially how it accounts for vulnerable victims. Not only was it unclear whether there were fine enhancements related to victims, no portion of the settlement was allocated for their restitution. Finally he challenged the amount of the fine, as sentencing guidelines would typically recommend a range of $18.5 to $30.9 million, far above the agreed $6.2. While the main justification for his dismissal of the agreement hinges on the lack of transparency in the sentencing decision, his assessment of effects and validity of “C” pleas extends beyond the material facts of this case.³⁵

One notable provision Young critiques is the government’s agreement not to pursue any further prosecution of Aegerion related to its misbranding on Juxtapid. This is common practice in “C” deals, but according to Young, it presents the risk of allowing other involved parties to escape accountability. Young also extensively reviews the impact that “C” pleas have on judicial authority. Judges are traditionally responsible for overseeing trials and sentencing guilty parties. However, with pre-negotiated agreements, judges are stripped of their discretion over appropriate penalties. This is especially concerning in cases like Aegerion’s, where the exact sentencing criteria and calculations were not even known to the judge. Finally he points to the inequality in the justice system that arises from allowing corporate entities to evade trial before jury through their comfortably negotiated plea deals:

“…Aegerion proves beyond preadventure that a forbidden two-tier system pervades our courts. Corporations routinely get “C” pleas after closed door negotiations with the executive branch while individual offenders but rarely are afforded the advantages of a “C” plea. Instead, they plead guilty and face a truly independent judge. This is neither fair nor just; indeed, it mocks our protestations of ‘equal justice under law’.”

Judge Young’s opinion in this case necessitates a critical rethinking of how justice is administered in pharmaceutical cases. For the sake of securing recoveries, the government has prioritized reaching an agreement that gives guilty parties a large say in how they are penalized, rather than risk presenting their case before a jury and an uncertain outcome. As Young points out, this presents a potential conflict in reaching a truly fair outcome.³⁶ This concern is echoed in similar cases. Many have criticized the lack of accountability for the opioid crisis, especially considering how greatly both the company and Sackler family profited in comparison to the resulting penalty. This is an especially jarring reality when comparing the sentencing of individual drug dealers, responsible for pedaling the same illicit substances, that almost always face a public trial and time in prison.

These plea agreements also raise new concerns of accountability. First, in that they lack the full transparency and public awareness that would otherwise result from standing trial.³⁷ Second, while Purdue and Aegrion both pleaded guilty in their settlement process, this is the exception rather than the rule. The majority of healthcare fraud cases end in pleas of nolo contendere, or no contest, which allow the companies to end the dispute and avoid trial without ever accepting any culpability for their actions. In fact, many go on to publicly deny the claims in an attempt to protect their reputations in the public sphere.³⁸

IVc. Future Approaches

While prevailing priorities rest in recovering economic losses, ensuring corporate cooperation, and quick resolution, the implications for victims and society generally can not be undervalued. The rejection of “C” pleas that do not sufficiently serve the public interest opens the door for a new conception of the moral implications of pharmaceutical fraud, outside the bounds of its economic impact. It is not feasible to ignore the vital impacts of “C” agreements, nor their ability to secure economic restitution to vital healthcare programs. However, the grave danger to the American public and the moral implications of harm to health and loss of life as a result of pharmaceutical fraud can not be ignored either. Forcing guilty pleas and acceptance of wrongdoing is one proposed step toward prioritizing the moral imperative to punish wrongdoers while ensuring an adequate settlement lies in requiring health care companies accused of fraud to publicly admit their guilt.³⁹ While it may not provide the full transparency power of a trial, the threat to corporate image would act as another incentive towards compliance, enforce the ethical norms attached to such behavior, and provide some reconciliation to both victims and their families.

V. Conclusion

Purdue’s instigation of the opioid epidemic serves as the most infamous example of pharmaceutical fraud, but its actions are a reflection of the status quo rather than the exception. Unfortunately, Purdue is not the only pharmaceutical company to have racked up a massive death toll. Merck’s criminal promotion of Vioxx, for example, has been attributed with an estimated 55,000 deaths.⁴⁰ In 2007, Merck settled the case for $4.85 billion, never admitted fault, and no executives were charged as a result.⁴¹ While the outcome of the plea agreement reached with Purdue is not perfect, it certainly reflects an evolution of enforcement practices in the pharmaceutical industry. The inclusion of individual prosecution against executive actors and a victim focused settlement approach that dedicated funds toward reversing harm done represents a possible blueprint for centering not only economic concerns but actionable methods of restoring the lasting social and physical harm inflicted upon the American public.

Given the pervasiveness of pharmaceutical fraud, it is imperative that settlements continue to include effective means of addressing the ramifications of their misconduct, fully accounting for the non-financial harms inflicted by their business practices. While economic penalties will continue to serve as the most powerful enforcement mechanism in pharmaceutical fraud enforcement, the widening humanitarian and individual considerations will create a more robust framework that encapsulates not just restitution, but morality as well. If the current practices are any indication of the future, the public can have some assurance that pharmaceutical companies will continue to be held to a much higher standard. Schemes like Purdue’s greed-fueled misconduct are finally coming to true justice and with emerging models of enforcement, it will only become harder for pharmaceutical companies to place profit over their duty of care.

Edited by Annie Cayer and Saadhi Jakka

About the Author

Emma Morgan is a senior at Northeastern University majoring in Sociology and Political Science with a minor in Data Science. She serves as a Research Editor of the Northeastern University Undergraduate Law Review, where she supports staff writers in developing and refining their pieces. In past semesters, she has also served as a Staff Writer, publishing two articles: 404 of Regulation Not Found: The Need for Digital Antitrust Law in the Era of Big Tech and A Harder Pill to Swallow: Evolving Legal Frameworks for Holding Pharma Accountable.

Emma’s legal interests include antitrust law, corporate accountability, and regulatory compliance. She is especially interested in studying how private-sector non-compliance affects broader social and economic inequities. She has previously completed an Ethics & Compliance co-op with Lantheus, a Legal Support Internship with the Major Crimes and Public Corruption Divisions of the United States Attorney’s Office of MA, and a Global Compliance Co-op at Boston Consulting Group, where she continues to intern.

A Harder Pill to Swallow: Evolving Legal Frameworks for Holding Pharma Accountable

Abstract

I. Introduction

II. The Current State of Pharmaceutical Enforcement

III. The Role of Individual Accountability

IV. Merits and Limitations of Corporate Settlements

IVa. Plea Bargaining in Pharmaceutical Cases

IVb. United States v. Aegerion

IVc. Future Approaches

V. Conclusion

About the Author

Notes from the Author

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