From remarks last week at CBI’s Annual Pharmaceutical Compliance Congress in Washington D.C., SEC Director of Enforcement Andrew Ceresney highlighted three types of misconduct that most often arise in the pharmaceutical industry concerning violations of the Foreign Corruption Practices Act.

Those three types of misconduct are discussed below.

Pay-to-Prescribe

In so-called “Pay-to-Prescribe” cases, doctors and hospitals are paid bribes in exchange for prescribing certain medication, or other products, such as medical devices. “Some of our cases involve simple cash payments to doctors and other medical officials, but we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians,” Ceresney said.

For example, Pfizer agreed to pay more than $60 million to settle charges brought against it by the SEC and Department of Justice in 2012 to resolve allegations that its subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia found a variety of illicit ways to compensate doctors. In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions.

Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote.  The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses.

In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions. Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.  Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Formulary Drugs

A second common form of bribery is aimed at getting drugs on the approved list. “Getting your company’s drugs on formularies is important to success in this industry, but the FCPA requires that you do this without paying bribes,” said Ceresney. “We have taken action where companies have crossed that line. 

One case against Eli Lilly, for example, included such violations. In that case, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority.  That official, in exchange, placed Lilly’s drugs on the government reimbursement list. That action involved a variety of other FCPA violations, and Eli Lilly paid $29 million to settle the matter. 

Charitable Contributions

Bribes disguised as charitable contributions are a third common FCPA violation in the pharmaceutical industry. The FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business. “We take an expansive view of the phrase ‘anything of value,’” said Ceresney. “The phrase clearly captures more than just cash bribes.”

For example, Stryker agreed to pay more than $13.2 million to the SEC in 2013 to settle civil charges for violating the FCPA after its subsidiaries in five different countries bribed doctors, health care professionals, and other government-employed officials in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor. In return, the doctor agreed to provide business to Stryker. 

In another case, the SEC brought charges against Schering-Plough arising out of $76,000 paid by its Polish subsidiary to a charitable foundation. The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals. In settling that action, Schering-Plough consented to paying a $500,000 penalty.   

“The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry,” said Ceresney. “So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA—whether it is cash, gifts, travel, entertainment, or charitable contributions. We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.”

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