Drug companies and medical- device makers keep tripping over laws designed to curtail their hyper-aggressive business practices. The latest blunder: Johnson & Johnson (JNJ) disclosed on Feb. 12 that some of its units had made "improper payments in connection with the sale of medical devices" in two foreign countries. Neither J&J nor the Justice Dept. will comment on the details, but Michael J. Dormer, worldwide chairman of medical devices and diagnostics, took responsibility and retired.
In fact, federal and state investigators are looking into drug companies for everything from improper pricing to illegal marketing. Fines are raining down, and the crackdowns show no sign of letting up. Experts suspect the authorities are trying to send a message to the industry: Shape up or pay up. "No doubt there's a lot more attention being paid to these issues than there has been in the past," says Jerome P. Kassirer, a distinguished professor of medicine at Tufts University School of Medicine. "If enough companies get fined, maybe the industry will wake up and do something about it."
Much of the federal agency's vigilance is aimed at preventing companies from collecting more than they should from Medicare and Medicaid. Justice has 150 such investigations on its docket. The department joined a whistle-blower suit against a U.S. manufacturing subsidiary of German drug giant Boehringer Ingelheim on Jan. 29. The suit alleges that their unit in Columbus, Ohio, artificially inflated prices for drugs it manufactures, in some cases by as much as 1,000 times, so it could reap higher reimbursement rates from federal health-care programs. "Our intervention in this lawsuit is another example of our ongoing effort to combat these practices and hold its perpetrators accountable for their misdeeds," said Peter D. Keisler, assistant attorney general for the Civil Div., in a statement released at the time. A spokesman for the company responds that it "has at all times complied with the tangle of laws and rules imposed by the federal government and the fifty states."
Even relatively small biotechs are finding themselves on the radar of fed-up regulators. In October, Brisbane (Calif.)-based InterMune (ITMN) agreed to pay more than $36 million to settle charges that it marketed one of its drugs for unnecessary or off-label uses. The government alleges InterMune promoted the drug as a treatment for lung scarring, even though the U.S. Food & Drug Administration had only approved it to treat a rare immune disease and a bone disorder. "The company has a new management team, which has established an internal compliance program," a spokeswoman says.
State attorneys general are also up in arms. The Texas AG recently unsealed a case alleging one of J&J's drug subsidiaries, Janssen, improperly marketed one of its psychiatric products for use in children. On Feb. 9, the state's assistant attorney general testified before Congress that Janssen's aggressive marketing practices cost the Texas Medicaid program $117 million over five years. J&J declines to comment. Meanwhile, Eli Lilly & Co. (LLY) is facing civil and criminal investigations in several states over allegations that it concealed links between its Zyprexa, a schizophrenia drug, and diabetes, and also that it marketed Zyprexa for off-label uses. Lilly says the complaints are in an "early investigative stage," and that it intends to cooperate.
J&J may escape its foreign-marketing debacle with no charges and no fines because the company found the wrongdoing and reported it before the government dug it up. "That's the kind of conduct the government wants companies to engage in," says Michael N. Levy, head of white-collar investigations and enforcement for McKee Nelson, a Washington law firm. "J&J will be well positioned to argue its conduct should not be subject to sanctions." However it plays out, federal and state officials are likely to keep medical companies under the microscope.
By Arlene Weintraub