Can big fraud settlements curb corporate misdeeds?

Pharmaceutical giant GlaxoSmithKline got slammed with $3 billion settlement by the Justice Department last week for improperly marketing their prescription drugs back in the late '90s and early 2000s.

The charges were deadly serious. Among other things, Glaxo was alleged to have promoted to kids under 18 an antidepressant approved only for adults and for pushing two other anti-depressants for unapproved purposes, including treatment of sexual dysfunction. To further boost sales, the company is said to have showered doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.

Now $3 billion may sound like a lot of money, but during the years covered under the settlement, Glaxo is reported to have made nearly $30 billion on these three anti-depressants alone.

But to the extent the penalty will affect Glaxo's profits and share price, the wrong people will be feeling the financial pain. Most of today's Glaxo shareholders bought into the company after the ill-gotten profits were already built into the price they paid for their shares.

The only way to get a big company like this to change its ways is by making individual executives feel the heat. But not a single executive has been charged. Glaxo has agreed to reclaim the bonuses of any executives who engaged in or supervised improper behavior. But without legal charges against the executives involved, it's impossible to know whether Glaxo will follow through.

An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can't buy them and shouldn't be influencing doctors' decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.

Finally, there's no good reason why doctors should be allowed to accept any perks at all from companies whose drugs they write prescriptions for. Codes of ethics that are supposed to limit such gifts obviously don't work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice. It's an inherent conflict of interest.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
Log in to post4 Comments

We never hear what by now has become the gorilla in the room: three strikes of fraud and you are out of business. Why the public is being subjected to continuous fraud is an outrage. Prosecutions and heavy fines are needed, but putting these businesses out of business is a must. The only reason they are not sent packing is the shareholder protections that corporate politicians find sacrosanct. The citizens of America must understand these failures in accountability come from who you elect.....Third Way corporate politicians disguised as Democrats are the driver of this policy. Just look at your own Democratic state to see silence on these critical issues. Vote for real Progressives next election and vote your incumbent out of office!

I agree with Robert Reich -- however, last time I checked it is the Federal Trade Commission (FTC) that regulates advertising, not the FDA.

If the Supreme court thinks that Corporations are people too and corporations get away with fines of 10% of their past year's revenue, why do people have to serve life time or death sentences for criminal offences? Shouldn't people be able to get away with paying 10% of their past year's salary?

How hypocritical of a past government official like Robert Reich to criticize doctors for accepting gifts from drug companies . The worst offenders are politicians on both sides of the isle who seem to have no problem being courted by lobbyists with trips, gifts etc to do the beckoning of the companies they lobby for. At least doctors are doing some good for the people they serve while receiving their perk. Politicians, on the other hand, have no problem accepting the perks regardless of whether their support is helpful or Harmful to the people they serve.

With Generous Support From...