Allergan, Guilty Pleas and Federal Health Programs

| About: Allergan plc (AGN)

When Pfizer (NYSE:PFE) pleaded guilty to off-label marketing last year and paid a whopping $2.3 billion fine, a little-known fact later emerged - a subsidiary was actually charged with the crime and, as a result, the parent company was allowed to continue doing business with Medicaid and Medicare. Of course, excluding Pfizer from such lucrative contracts can cause painful collateral damage - untold numbers of patients would be denied needed treatments and many employees could suffer (back story).

However, when Allergan (NYSE:AGN) agreed earlier this month to plea guilty to a misdemeanor for misbranding in connection with off-label marketing of Botox and pay a $600 million fine, it was the parent company that took the heat. Under federal law, Allergan should then be excluded from doing business with the federal health programs, because such a move is mandated (see this). Just the same, the drugmaker can continue doing business with federal health programs, because the US Department of Health & Human Services’ Office of Inspector General issued an exclusion.

When a company enters into a CIA, it does so in lieu of being excluded from Federal health care programs. OIG carefully weighed a number of facts and circumstances in evaluating whether or not to exclude Allergan. Excluding Allergan would mean that Medicare, Medicaid, and other Federal health care programs would not pay for Allergan’s drugs. And that would have a huge impact on many of our beneficiaries. Given the comprehensive nature of the CIA, OIG decided it was in the best interests of Federal health care programs and their beneficiaries not to exclude Allergan at this time.

How so? By entering into a Corporate Integrity Agreement, Allergan was able to avoid exclusion. As an OIG spokeswoman explains: “There are both mandatory exclusions and permissive exclusions. OIG is required to exclude a company or individual convicted of a felony. In other cases, we may elect to exclude a company for violations of federal health program laws. In cases where we have the right to exclude a company or individual, we may agree to negotiate and enter into a Corporate Integrity Agreement in lieu of exclusion.”

She went on to explain the OIG “carefully weighed” whether to exclude Allergan and decided that doing so would mean that Medicare, Medicaid, and other Federal health care programs “would not pay for Allergan’s drugs. And that would have a huge impact on many of our beneficiaries.” However, she added that Allergan can still be excluded if there is a “material breach of the Corporate Integrity Agreement.”

So while it may not quite be business as usual, Allergan will continue to ring its register as before. And Allergan execs are off the hook, despite previous pronouncements from HHS OIG Inspector General Lewis Morris that drugmakers that repeatedly defraud the government may see their execs fired or banned from working at other companies doing business with the government (see this). This may explain, in part, why some frustrated shareholders filed suit against the Allergan board and its CEO (look here). But what do you think? Should the Allergan execs face some consequences themselves?

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