Best Return On Invested Capital In Pharma?

Most people would agree that health care fraud is not a good thing, but there is a proverbial silver lining, of sorts. Chasing down the violators actually fills the US Treasury. In fiscal year 2012, for instance, the US Justice Department recovered more than $3 billion in settlement and judgments in civil cases involving health care fraud against the government (see this).

And now, a new report finds that every dollar invested by the federal government to investigate and prosecute health care fraud generates a healthy return. From 2008 to 2012, the feds spent $574.6 million to recover nearly $9.4 billion, which amounts to a return on investment of 16.3 to 1, according to Taxpayers Against Fraud, a non-profit that supports whistleblower lawsuits.

The return, however, may be even higher and approaching 20 to 1. How so? Civil fraud recoveries not represent only a portion of enforcement actions taken in health care fraud cases, as increasingly large settlements that produce large criminal fines and state Medicaid recoveries are not accounted for in federal statistics, according to TAF.

The report finds that criminal fines associated with false claims recoveries by the federal government between 2008 and 2012 were $4.5 billion, and that recoveries by state governments totaled $4.4 billion. Combined with the nearly $9.4 billion recovered in civil cases, the total amount recovered for the five-year period was roughly $18.3 billion (here is the report).

The analysis was undertaken to point out that many cases can be traced to the False Claims Act, which allows individuals to file whistleblower lawsuits that detail episodes of illegal marketing or fraudulent claims that were filed with federal health care agencies, including Medicare and Medicaid. These suits are brought on behalf of federal and state governments and whistleblowers can receive a payout.

MRK Return on Invested Capital Chart

MRK Return on Invested Capital data by YCharts

For instance, the biggest case in 2008 involved a $650 million settlement with Merck (MRK) for nominal pricing fraud, with kickback and best price violations (see earlier Pharma news). The biggest case in 2009 involved Pfizer (PFE) and a $2.3 billion deal, which included a $1.3 billion criminal fine and forfeiture related to fraudulent off-label marketing. The fine is the largest ever imposed in the U.S. A total of $1 billion was paid to settle civil false claims.

The biggest case in 2010 involved Allergan (AGN) and a $600 million deal for off-label marketing of Botox and the biggest case in 2011 was with GlaxoSmithKline for $650 million involving adulterated drugs made at a plant. Glaxo (GSK) also took the price in 2012 for a $3 billion deal for illegal marketing of nine different prescription drugs. The deal included a $2 billion civil settlement and a $1 billion criminal fine (see prior Pharma news).

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

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