Thursday, May 26, 2011

Obama Abuse of Power #54637

I don't think many people are aware of this but the Obama Administration is currently putting an extraordinary amount of pressure on Forest Laboratories, the makers of Lexapro, to dump their CEO, Howard Solomon.  The Office of the Inspector General, Department of Health and Human Services (OIG-HHS) is using a rule dug up from the Social Security Act of 1935 to personally exclude him from doing business from the Federal Government.  With medicare, medicaid and VA being such a large slice of the US Healthcare Spending pie (last I checked, government spending as a % of total healthcare spending was about 50%), this would reduce Forest revenues considerably.  If the OIG-HHS actually does exclude Mr. Solomon, who has been CEO since 1977, he will have no choice but to resign.  The grounds that the government is using is that Forest Labs settled a case in which the government charged them with improper marketing of Lexapro and obstruction of justice, by pleading guilty and paying a $313 million fine. 

The problem is the most serious charges stemmed from plant employees misleading FDA inspectors back in 2003, something that it is doubtful Mr. Solomon was aware of and his knowledge has definitely not been proven (the government states that a CEO's knowledge is not necessary for them to try to exclude them from doing business with the Feds, but if he didn't have knowledge why persecute him in the first place?).  Another issue is that the improper marketing was really kind of a fuzzy area.  What seems to have been the crux of the Federal case on improper marketing was lunches and dinners funded by the company where doctors spoke to other doctors on how good Lexapro was.  They also bought lunch for doctors ("lunch and learns) which allows the sales representative more time to pitch the doctors on a product.  This is hardly Enron level stuff.  And when I'd attend medical conferences I attended some of those physician education dinners funded by companies.  We're not talking about hookers and strippers cajoling docs to write prescriptions.  They are relatively boring affairs where you get "conference chicken" and a little desert in exchange for sitting through a boring 1 hour presentation.  When you are away from home at a conference and have nothing better to do, this is better than sitting in your hotel room looking through pay per view (especially if you are actually interested in the science or clinical data presented).

If this is true then why did Forest settle in the first place, you ask?  There is a reason why you've never seen any of these improper marketing cases go to trial, why they are always settles for gobs of money.  I was told the reason by the late CEO of Cephalon, Frank Baldino, who also settled for gobs of cash.  It's all about risk-reward for the CEO.  If you go to trial and you lose, recent legislation (like Sarbanes Oxley) makes it clear that the CEO could actually go to jail.  Since we are talking about gray areas here, even if you are innocent, there is no way to guarantee victory.  A simple thing like the location of the trial can determine this case more than anything.  If it's in the corporations hometown, they will likely win, if it's in an area where people hate big corporations, the government will probably win.  So when a CEO thinks about whether they want to risk their own personal freedom or just pay shareholder dollars, the choice is pretty clear.  Settle.  So just because Forest did plead guilty and settle doesn't mean they were actually guilty, they just didn't want to take the personal risk of a trial.

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