Yet another major pharmaceutical company is now being
persecuted prosecuted for off-label promotion. This time it's Johnson & Johnson, being pursued over allegations that the company illegally promoted its antipsychotic drug Risperdal for unapproved uses. As The Wall Street Journal reports, though, settlement negotiations have hit a snag.
Federal prosecutors in Philadelphia reached a tentative agreement under which J&J would pay a whopping $1 billion in fines. But Justice Department officials in Washington rejected the deal and are now seeking an even higher payment. According to the Journal:
"The Justice Department prosecutors are seeking a settlement of around $1.4 billion, the sum that Eli Lilly & Co. agreed to in 2009 to resolve allegations it had improperly promoted its antipsychotic drug Zyprexa, according to one of the people familiar with the matter. Yet J&J officials have resisted paying that amount.
"An outright rejection of a deal is unusual, according to Shelley Slade, a former Justice Department health-care fraud lawyer who now represents whistleblowers suing drug makers. Ordinarily, prosecutors in a U.S. Attorney's Office work with counterparts in Washington, D.C., to find mutually agreeable terms, Ms. Slade said."
As with many of these off-label promotion cases, the allegations are broad ranging and appear to include a mix of ethical and unethical behavior - ranging from the promotion of Risperdal to treat pediatric patients with attention-deficit disorder prior to 2006 when the drug was approved for that use to the payment of kickbacks to pharmacies to push Risperdal over alternative drugs. And the company is being pursued not only by the feds, but also by several state attorneys general.
But, while J&J thought its position in the state lawsuits was strong enough to fight in court, the federal government has a tool at its disposal that makes an out of court settlement almost guaranteed: the potential exclusion of any of the company's products from Medicare and other federal health programs. Federal anti-fraud laws permit government programs to exclude, suspend, or "debar" corporations that have merely been accused in an indictment of fraudulent behavior from doing business with the federal government. No guilty verdict is necessary.
As you can imagine, with the federal government picking up the tab for more than a quarter of all US health spending, exclusion from federal health programs would be tantamount to a corporate death sentence. "It is thus not surprising," notes Ropes & Gray attorney Joan McPhee, "that virtually all rational corporations ... conclude, as a business matter, that they cannot incur the risks associated with taking an indictment and going to trial, even when, in the corporation's assessment and that of its seasoned counsel, the threatened case is without factual or legal merit."
Because I have argued in both the popular and scholarly press that much (though not all) off-label promotion is protected by the First Amendment, I have been asked repeatedly why few defendants have challenged the off-label promotion ban in court. In part, it is because the high profile cases brought against drug firms often include allegations other than constitutionally defensible speech - such as the kickback allegations in this case. The flip-side of that is that the Food and Drug Administration and Department of Justice have been very good at selecting the cases they pursue, so as not to set up clean constitutional questions. And, when backed into a corner, the FDA and DOJ have been able to dispense with problematic cases before a clear ruling that the off-label promotion ban is unconstitutional (see my descriptions of the WLF and Allergan cases in this paper, for examples).
But arguably the most important reason why more of these cases don't make it to court is the fact that an indictment, what McPhee calls the "admission ticket" to the courtroom, all by itself spells potential doom for a drug firm. "[W]hile there are strong legal and constitutional defenses to the government's attempted criminalization of truthful, nonmisleading off-label dissemination, there is no available avenue for targeted corporations to gain access to a judge or jury without risking corporate death."
So, J&J may believe that the Justice Department's demand for a $1.4 billion settlement is wholly unwarranted. But I'd be willing to bet they eventually take that deal.