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Washington, DC – The 11 largest global pharmaceutical companies paid their CEOs a combined $1.57 billion over the last 10 years, according to corporate filings analyzed by Health Care for America Now (HCAN). In that time, sharp increases in their pay coincided with the advent of the Medicare prescription drug program, sharply higher profits and an industry-wide epidemic of unlawful conduct.
In 2012, the drug companies’ chief executive officers drew total compensation of $199.2 million, two and a half times the total for 2003. In 2006, the year the Medicare prescription law went into effect, the pay of the CEOs jumped by $58.9 million from the previous year, the largest one-year increase during the decade HCAN reviewed.
The prescription drug program was a windfall for Big Pharma and its top executives because the industry inserted into the law a provision barring Medicare from using its unparalleled purchasing power to obtain discounts or negotiate prices with drug companies.
“By prohibiting Medicare from getting better drug prices, the federal government is subsidizing the greed of the drug companies and their CEOs,” said Ethan Rome, executive director of HCAN. “This is why Americans pay vastly higher prices than people in other countries for identical drugs. It should not be the official policy of the United States to price-gouge our people and government – a practice that’s especially offensive when some in Washington are talking about cutting Medicare benefits to seniors and middle-class families.”
HCAN’s analysis of CEO pay focused on 11 companies: Johnson & Johnson, Abbott Laboratories, Pfizer, Novartis, Eli Lilly, Roche, Merck, Bristol-Myers Squibb, Sanofi, GlaxoSmithKline and AstraZeneca. Over the 10-year period, the $1.57 billion in total compensation was split among 27 executives. The top earners in 2012 were Johnson & Johnson’s William Weldon, who took in $29.8 million, and Pfizer’s Ian Read, who received $25.6 million.
The CEOs’ paychecks dwarf the incomes of average workers and retirees. In 2011, median household income in the U.S. was $50,054, while half of all Medicare beneficiaries had less than $22,500 in annual income.
- Click here for details on Big Pharma’s annual CEO compensation expenditures. In April, HCAN released new data showing that the 11 drug companies reported $711.4 billion in profits over the same 10-year span.
“It’s wrong and it’s wasteful that the world’s largest single purchaser of prescription drugs can’t negotiate a fair price with drug makers,” Rome said. “We should be paying the lowest drug prices, not the world’s highest. Why has Congress subsidized the highest pharmaceutical profits and corporate pay that we have ever seen?”
Instead of cutting Medicare benefits, Congress should enact reforms that lower the cost of prescription drugs. For example, the Medicare Drug Savings Act, introduced by Sen. Jay Rockefeller (D-WV), would cut $141 billion over the next 10 years without reducing Medicare benefits.
Illegal and Improper Conduct on the Rise
The increases in CEO pay and profit corresponded with a surge in illegal and improper conduct by the pharmaceutical industry. From 2003 to 2012, financial penalties paid by drug manufacturers to settle allegations of illegal marketing, price-gouging of government programs and other violations rose by more than 500 percent, according to a report issued by Public Citizen in September 2012. These figures suggest that illegal activities have become part of Big Pharma’s business model.
In 2003, there were only nine settlements with the federal or state governments, amounting to $967 million in penalties. In 2011, federal and state government agencies reached a record 44 settlement agreements with drug makers. By July 2012, with the year only half over, drug companies had already agreed to pay nearly $6.6 billion as part of 19 settlements with the government. Data on the second half of 2012 have not yet been compiled by Public Citizen.
The most common drug-company violation cited by regulators and law enforcement agencies was overcharging government health programs, while the largest penalties involved illegal promotion of prescription drugs.
HCAN’s comparison of CEO compensation with drug companies’ settlements makes clear that corporate leaders are not being held accountable for their companies’ illegal conduct. Instead, these leaders personally benefit from an industry culture that treats huge settlements for unlawful behavior as incidental business costs rather than effective deterrents. Here are some examples:
- In 2012, Abbott Laboratories agreed to pay $1.5 billion to federal and state governments over its admitted unlawful promotion of prescription drugs and allegations of illegal kickbacks. Abbott CEO Miles White, who has held the job since 1998 and ran the company at the time of the illegal conduct, collected total compensation of more than $25 million in 2012—a $1 million increase from the previous year.
- In 2012, Johnson & Johnson reached a settlement with the Department of Justice that could ultimately reach $2.2 billion over allegations that the company illegally marketed the anti-psychotic drug Risperdal to patients with Alzheimer’s disease and dementia. The settlement included a $400 million criminal fine. The company was allowed to continue selling its products to Medicare and other government programs. Johnson & Johnson has also settled lawsuits overcompany efforts to conceal Risperdal’s side effects, including breast growth in boys. CEO Alex Gorsky, who made $11 million in 2012, previously ran the Johnson & Johnson unit responsible for manufacturing and marketing Risperdal.
- In 2006, GlaxoSmithKline Holdings agreed to pay $3.4 billion to settle Internal Revenue Service allegations that it underpaid U.S. taxes from 1989 to 2005. CEO Jean-Pierre Garnier, who headed the company from 2000 to 2008, earned $5.4 million in 2006 and $6 million in 2007. GlaxoSmithKline said the settlement would not have “any significant impact” on its earnings. The company tops Public Citizen’s “Worst Offenders” list with 20 settlements amounting to $7.56 billion in penalties.
“The drug companies racked up penalties for criminal and civil violations, they jacked up prices for seniors and the government, they made excessive profits and gave unconscionable compensation to the CEOs in charge of it all,” Rome said. “It is truly obscene that Congress would even contemplate cutting benefits to seniors at a time when the federal government is throwing money at drug companies to reward their boundless greed.”
Health Care for America Now, the nation’s leading grassroots health care coalition, led the fight to win health reform. HCAN works to promote the Affordable Care Act, protect Medicare and Medicaid, and keep Congress from being steamrolled by corporate special interests.