The Government’s Lack of Discretion in Pharmaceutical Regulation

Published May 31, 2016

One of the greatest challenges of government is to find ways to navigate a perpetual constitutional dilemma: government officials must have enough power to enforce the law, by the use of criminal sanctions, if necessary. Yet every expansion of power that is needed for the efficient enforcement of good laws opens the door to abuse of discretionary government powers.

Controlling discretion is a serious problem, even in a small-government regime that seeks to emulate the nineteenth century vision of the night watchman state. The chief function of such a state is to ensure that individuals do not trespass on the rights of others as they go about their business. But in a government that takes a capacious view of its powers, the problem of discretion becomes ever more acute.

One of my constant concerns with the Obama administration is that its vision of executive power means that it has not recognized the need to rein in its discretion. That same tendency toward mischief is revealed in its recent actions expanding the criminal punishment for off-label drug uses.


Fraud and Off-Label Drugs

The off-label drug issue arose in connection with recent actions in the Office of the Inspector General. That office is charged with the unenviable task of dealing with fraud and false claims within Medicare and Medicaid.

In one sense, it is hard to take issue with any antifraud program, given the way in which fraud undermines a sound libertarian order. But in many cases, the devil lies in the details.

Thus, one question in all of these cases is: What counts as fraud? Stealing from the government by supplying fake bills for services not rendered surely qualifies. But Lewis Morris, chief counsel to the Inspector General, has used a rather expansive definition of fraud. In particular, under Morris’s definition, any pharmaceutical company that promotes an approved drug for an off-label use is guilty of fraud, even “on a grand scale,” under the current food and drug law.


FDA Regulating Medical Decisions

The Food and Drug Administration (FDA) has statutory powers to determine what drugs may be let on the market and how they may be promoted. Under the FDA’s view, the only uses for which drugs may be promoted are those for which the pharmaceutical company has received explicit government approval. Yet, by the same token, the FDA does not have the power to regulate the practice of medicine, which includes the ability to prescribe any drug lawfully on the market for both approved and unapproved uses.

The current law thus creates a peculiar tension because for many conditions, including some of the deadliest cancers, the large majority of prescriptions are written for uses that the FDA does not allow. Instead, what happens is that a complex network of physicians and physician groups screen various drugs to see how and where they work. Their recommendations often set the standard of care for medical malpractice liability and, most ironically, for Medicare and Medicaid reimbursement.

It is an instance where the voluntary market is far more efficient than the lumbering FDA.


Fines for Helping Sick People

Nonetheless, many pharmaceutical firms have had to pay hundreds of millions of dollars in fines for marketing off-label drugs which may, when all is said and done, advance social welfare by helping more sick people escape the clutches of the FDA.

But the government is not only imposing criminal fines on these firms; it is also going after senior management within those firms. On this issue, Lewis Morris makes it clear that his office has the discretion to force firms guilty of over-promotion to dump key executives if they wish to keep their business with the government.

Just that threat has been imposed on Forest Pharmaceuticals, which has agreed to pay out about $313 million in assorted fines and repayments for the illegal over-promotion of three key drugs: Levothroid, Celexa, and Lexapro. Beyond the fines, the government is insisting on the dismissal of Forest Pharmaceuticals’ CEO, Howard Solomon, who deserves most of the credit for Forest’s successful expansion as a business.

This raises many questions: Why this executive from this firm? Why not other executives from the same firm? Or, indeed, all the senior executive staff? And should other firms be treated in the same fashion?


Prosecutors Pick and Choose

Pushed to an extreme, the entire firm could be decimated in its senior ranks if the Office of the Inspector General goes to the limits of its powers, which works to the long-term advantage of no one.

But unless and until someone explains what forms of conduct deserve what sorts of sanctions, the dangers of prosecutorial discretion are compounded. It is well known today that no corporation that does business with the government can afford to spurn its largest customer. So what the government proposes, the firm will accept.

At this point, someone must clarify which moves are in the government playbook and which are excluded. With Forest Pharmaceuticals, we have a vast power asserted in support of a questionable cause, without any clear sense of mission. And as government relentlessly expands, the problem of controlling discretion seems to be getting worse, not better.


Richard Epstein ([email protected]) is the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and the Laurence A. Tisch Professor of Law at New York University.