Getting Away with Murder: Profits vs. Penalties

One of the feature articles in this month’s Fortune is entitled “Bad to the bone: A medical horror story.”  It discusses a medical device company that encouraged surgeons to use an experimental product on patients, killing several.  The company had information that complications with the experimental product could lead to near-instant death.  The FDA had explicitly prohibited the company from advertising this off-label use or from encouraging surgeons to attempt it.  The company did it anyway.

Several managers involved in the off-label marketing spent–or are spending–several months in jail, convicted of misdemeanors under the Responsible Corporate Officer doctrine (or Park doctrine).  As explained by the Wall Street Journal, this doctrine “holds executives in certain positions of authority criminally liable for alleged violations of food and drug laws, even if they didn’t have direct knowledge of the underlying conduct.”  Here, though the government alleged that the managers were aware of the violations, it accepted guilty misdemeanor pleas in lieu of pursuing felony prosecution.  The company eventually received a modest fine of $23 million.  But the company still profited, selling itself to Johnson & Johnson for $20 billion last year, and making billions for its owners.  As part of the company’s plea deal, the government agreed not to pursue further criminal charges against other employees or managers of the company.

This result is disturbing.  While it is encouraging that the government is going after some individuals, the fact that the shareholders of the corporation are still able to profit (and that the alleged ringleader of the operation was able to take his money and run) is unfair to the public.  Government regulations should make sense; from the perspective of a business operating in a regulated field, they should be clear and easy to comply with.  But primarily, they should protect the public from those who would pursue profits at the expense of safety.  When new medical products are developed, there are strict guidelines for ensuring they are safe for use.  I’m sure one could easily argue that these processes are onerous and difficult to comply with, that they could be simplified, and that they cut into the profit margins of big pharma.  But so what?  The firms still profit.  And the regulations have been generally effective in protecting the public.  Innovation should be encouraged, but not when it kills people.  The penalties for bypassing requirements for trials should be severe, especially when unauthorized experimentation results in death.  In this case, though the penalties were more severe than what had become the norm, it appears that someone not only got away with murder, but profited from it.

The Fortune article:  http://features.blogs.fortune.cnn.com/2012/09/18/synthes-norian-criminal/

A WSJ article discussing the case:  http://online.wsj.com/article/SB10001424052970204443404577052173679627572.html

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