The federal prosecution of top executives from companies such as Enron, WorldCom, and Adelphia Communications has shone a spotlight onto what seem to be systemic problems of investor fraud. Despite oversight by corporate boards and the Securities and Exchange Commission, it seems to have taken the media glare of perp walks to begin to correct the problems and restore public trust.  

Fraud and trust have become an issue–albeit a less public one, so far–with another set of business relationships: those between doctors and drug companies. Late last month, the New England Journal of Medicine launched an effort to change the nature of those interactions. A series of articles in the prestigious journal’s October 28 issue critique drug makers and doctors alike–and call for stronger outside regulation, including, in some cases, prosecution.

Like public companies, physicians and pharmaceutical firms have traditionally self-regulated their interactions–mainly with vague and unenforced ethical guidelines. Most times, little perceived harm came from pharmaceutical makers giving gifts to doctors, or paying for their travel or meals. But such inducements contribute to the rapidly increasing cost of medical care. The drug industry spends between $8,000 and $15,000 per physician each year to market its products. The National Institutes of Health Care Management Research and Educational Foundation (a Washington-based nonprofit) found that retail spending on prescriptions more than doubled between 1995 and 2000, growing from $64.7 billion to $132 billion. Around 25 percent of this increase–nearly $17 billion over five years–was attributed to a shift to the prescribing of expensive drugs that often offer only incremental improvement over existing drugs, many of which are about to lose patent protection and face cheaper generic competition. Doctors studying their colleagues have concluded that physician-drug company interactions, small and large, legal and illegal, are contributing to the increases.

In the past few years, federal prosecutors have begun to focus on the problem, using anti-fraud laws to go after interactions that may be harmful to patients. Some cases of fraud are pretty forthright, as when doctors charge Medicare for unnecessary procedures or drugs and receive kickbacks from the companies that provide them. One example vigorously pursued by federal prosecutors involved the prostate cancer drug Lupron. TAP Pharmaceuticals, the drug’s maker, encouraged urologists to bill Medicare the wholesale price for Lupron while the doctors received the drugs free or at discounted prices. U.S. Attorneys filed charges under both the criminal anti-kickback statute passed in 1972 to protect Medicare and Medicaid from fraud and the False Claims Act, which imposes civil penalties on people or companies who knowingly submit fraudulent claims for payment to the federal government. In 2001, the company settled the case, paying $290 million in criminal fines and $585 million in civil penalties. Several doctors involved faced criminal prosecution as well; at least one was convicted and sentenced to one year of probation and fined $20,000.

In other instances, though, “fraud” can be difficult to define. Most doctors will, if asked, confess to having gone to a “drug dinner.” Over a meal at a trendy restaurant, a group of doctors listens to an expert, often a medical school professor, lecture about clinical trials of a new drug or a study comparing the effectiveness of two different drugs. Often, papers published in medical journals on the same topic are handed out. The dinners are presented as a sort of medical education, informing doctors about new drugs. “There’s no blatant endorsement by the faculty,” says one surgeon-in-training who has been to many dinners, lunches, and departmental functions sponsored by pharmaceutical companies. “It’s usually as neutral as they can get, given the material”–namely, slides prepared by the sponsor, about studies performed by the sponsor.

Yet the entire evening, top to bottom, is an ad. The doctors trade their time for sumptuous cuisine, paid for by the sponsoring drug company. Worse, the medical papers that are distributed may be suspect. In a practice receiving increasing ethical scrutiny by professional associations of both physicians and medical writers, doctors may lend their names–again, in exchange for money–to papers based on data and literature searches performed by the drug companies. The papers are sometimes ghostwritten by medical communications companies–outfits that in some cases are subsidiaries of public-relations firms that also create drug advertising.

Doctors say they know the score. “Everyone knows what the evening is and takes it with grain of salt,” says the surgeon. But knowing that you’re the target of a sales job doesn’t immunize you from its effect. Consumers know the purpose of TV commercials, too, and yet still go right out and buy the advertised products. Even such innocuous tactics as the ubiquitous pens and pads emblazoned with drug logos can have an impact. Studies have shown that a wide variety of interactions between pharmaceutical companies and doctors–from consulting fees to free pens–do in fact influence physicians’ prescribing patterns. In a 2003 commentary published in the Journal of the American Medical Association, Carnegie Mellon economist George Loewenstein concluded that “by subtly affecting the way the receiver evaluates claims made by the gift giver, small gifts may be surprisingly influential.”

And of these “gifts” contribute to the increase in expenditures on prescription drugs. Multiple studies have found a correlation between the cost of physicians’ treatment choices and the amount of contact with drug company representatives. An extensive review of the literature published in JAMA in 2000 found that doctor interactions with pharmaceutical companies led to increased prescription costs and “nonrational” prescribing, such as prescribing drugs that provide only incremental benefits to patients. Consider the heartburn drug Nexium, essentially a slightly improved version of Prilosec, which recently lost patent protection and became available generically and over the counter. The majority of “new” drugs now fall into this category; from 1989 to 2000, the U.S. Food and Drug Administration judged 76 percent of approved new drugs were, at best, moderate improvements over existing treatments. Many were like Nexium: a modification to an older product with the same ingredient. In 2000, according to a 2002 report by the National Institutes for Health Care Management Research and Educational Foundation, the average price of these new drugs was nearly twice that of existing drugs for the same symptoms.

A flurry of renewed, stricter self-regulation followed the Lupron case in 2002 and 2003. Both the pharmaceutical industry and physician’s organizations targeted actions that the settlement identified as violations of anti-kickback law, such as bogus consulting arrangements and control over program content at medical meetings. But drug dinners and other marketing practices–ghostwritten papers, entertainment, travel, and larger gifts, many of which are still permitted in some form or another under the new guidelines–might also constitute violation of anti-kickback laws, according to guidance published by the Justice Department’s Office of the Inspector General in April 2003.

Outright fraud, such as charging Medicare for unnecessary procedures or accepting consulting fees without performing a service, must be dealt-with. U.S. attorneys are taking action, using the criminal anti-kickback statute and the False Claims Act, both separately and in tandem. In 2003, for example, AstraZeneca settled criminal fraud charges related to the prostate-cancer drug Zoladex, a $355 million lawsuit that involved marketing inducements similar to those in the Lupron case. And in July, Schering-Plough pled guilty to charges under the anti-kickback statute and paid a $350 million fine–in part for providing grants to private physicians to conduct educational programs.

But more subtle ethical quagmires raise issues as well. Few dispute the benefits of researchers’ hiring writers to polish style and properly format papers. But medicine commands a level of public trust that other areas of science do not–and therefore it is all the more unsettling when it is revealed that medical papers are ghostwritten by drug company PR firms, with little input from the doctor whose name appears at the top. As much as prescription fraud, such practices are a betrayal of public trust.

Aggressive (and highly publicized) prosecution of the most egregious cases could help expose practices that are neither ethical nor legal, and might lead to even more aggressive self-regulation, to the benefit of patients and their trust in the doctors who treat them. A few good physician perp walks could help clean out the bad apples and help reform doctor-drug company interactions–a relationship that has gone badly astray.