The Cost of Big Business

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

“There’s a kind of mentality in this sector that [settlements] are the cost of doing business and we can cheat.”

The above is a quote by Bill Vaughn, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports in response to the news that Pfizer had been fined a U.S. record $2.3B. (Yup, that’s a “B” not an “M”.) Apparently Pfizer was caught illegally promoting its pharmaceuticals by heaping all sorts of gifts such as golf outings, massages, and resort stays upon doctors.

This wasn’t the first time Pfizer had been caught – they are a repeat offender having had to settle such allegations by the federal government four times in the past 10 years. Ouch. This is going to need more than just a topical ointment to solve.

I have written before about what is so sad about these kinds of fraud cases and this case is so massively big that some the consequences and characteristics bear repeating:

  1. The $2.3B penalty is about 4.8% of Pfizer’s 2008 total revenue of about $48B. The penalty seems materially significant and could cause stock prices to fall affecting investor’s earnings.
    • This would appear to violate Sarbanes-Oxley COSO compliance framework aspects such as the Control Environment (also known as the “tone at the top”), Internal Controls and Risk Management.
    • Can we expect a change of corporate management and a refund of performance bonuses?
  2. The products involved in the illegal promotions included Viagra, Zoloft and Lipitor.
    • Is the prescription of unnecessary pharmaceuticals one reason why our healthcare system is so expensive and in crisis?
    • What are the health impacts to a person when pharmaceuticals are prescribed that they really didn’t need?
  3. What ethics examples are being set for current generations of employees and those up-and-coming sales representatives, doctors, and business executives?

But before we build a gallows for one, let’s consider the doctors who accepted these trips and gifts. Okay so Pfizer should not have offered but by the same token the doctors should not have accepted. If business ethics are not taught in medical school or promoted by the American Medical Association they darn well should be.

Taking this another step further it’s one thing for the doctors to accept gifts but it’s another thing for them to act on them. (Um … gee … that actually sounds a little bit like fraud itself!) If doctors (a) were persuaded to and actually did prescribe medicines without cause to patients who didn’t really need them, or (b) were persuaded to and actually did prescribe one company’s brand over another without regard to which brand was actually the better remedy, then the doctors themselves are also at fault here.

To me there are aspects of this case that parallel the disturbingly thought-provoking movie District 9. What affected me most in that movie is that I think the brutal and ego-centric representation of the human race and the various government, military, and gang players was dead-on accurate, and that unnerves me. I felt sorry for the victimized aliens who were more the “good guys” than the humans.

Mr. Vaughn’s observation describes the steamy underbelly of some healthcare companies & healthcare providers. This is analogous to when police officers are caught selling drugs from the evidence room or abusing their authority for their own benefit especially when it conflicts with protecting and serving the law-abiding public, or when politicians abuse their power for their own self-interests.

This case is about nothing more than greed sustained by a lack of integrity and a failure of fortitude to do the right thing. The people who could put a stop to fraud like this seem too reluctant to do so in lieu of favouring their own self-interests, so I’m hoping for an alien invasion by a more ethical species than ours.

Norman Katz, Katzscan