Johnson and Johnson’s Latest Ethical Misadventures: Settled Kickback Allegations, Reportedly Concealed Knowledge of Adverse Effects of a "Sacred Cow" Product


Giant pharmaceutical/ biotechnology/ device company Johnson & Johnson has its famous “credo” which starts with

We believe our first responsibility is to the doctors, nurses and
patients, to mothers and fathers and all others who use our products and
services.  In meeting their needs everything we do must be of high quality..

Nonetheless, the company has a long history of ethical misadventures (look here, and see appendix below).  Now late in 2018,  we note two more Johnson & Johnson misadventures. In chronological order,

$360 Million Settlement of Allegations of Kickbacks to Medicare/ Medicaid Patients to Support Use of Extremely Expensive Drug

The story, per the New York Times, was that Actelion, a drug maker purchased by Johnson & Johnson in 2017, in 2014-2015 had

raised the price of its main drug, Tracleer, by nearly 30 times the rate of inflation. Tracleer, which is prescribed to treat pulmonary arterial hypertension, sells in pharmacies for an average cash price of about $14,500 for 60 tablets, according to the website GoodRx.

But to facilitate charging such high prices, pharmaceutical companies

often help patients pay their out-of-pocket costs through coupons or other financial assistance. These payments are not just about benevolence — they also help blunt the outrage over rising drug prices by limiting how much patients have to pay. Insurers then cover most of the cost.

But federal anti-kickback laws prohibit companies from giving such financial assistance to Medicare and Medicaid beneficiaries because doing so is considered an inducement to buy their drugs. For years, drug makers have skirted those laws by instead donating to nonprofit charities, which then give the money to Medicare patients. Such arrangements are legal as long as there is no direct coordination between the pharmaceutical company and the nonprofit organization.

However,

Federal prosecutors said Actelion violated the law by collecting detailed data in 2014 and 2015 about the patients receiving help from a nonprofit, the Caring Voice Coalition, and using the data to budget for future donations. As a result, Actelion ensured that the money it donated would be used only to assist patients who used its drugs, and not competing companies’ treatments for the pulmonary condition.

Prosecutors said Actelion kept up the practice even after the charity itself warned the company against it.

Actelion also steered Medicare patients to the Caring Voice Coalition who would have otherwise qualified financially for the company’s free drug program. By directing them to the nonprofit, the company avoided having to provide the drug to eligible patients and left Medicare to cover the cost instead, prosecutors said.

So,

Actelion Pharmaceuticals has agreed to a $360 million settlement stemming from an investigation into whether the company illegally funneled kickbacks through a patient-assistance charity, federal prosecutors said Thursday.

But keep in mind that Actelion is now a Johnson & Johnson subsidiary, and by buying it, Johnson & Johnson bought its financial, and ethical and legal liabilities.. So ultimately it will be Johnson & Johnson which pays the settlement.

Johnson & Johnson Alleged to Have Concealed Knowledge that its Baby Powder Contains Asbestos

The first reporting on this story was a lengthy investigative report from Reuters published December 14, 2018, based on newly released documents produced during a variety of lawsuits.  The report stated

that from at least 1971 to the early 2000s, the company’s raw talc and finished powders sometimes tested positive for small amounts of asbestos, and that company executives, mine managers, scientists, doctors and lawyers fretted over the problem and how to address it while failing to disclose it to regulators or the public.

The documents also depict successful efforts to influence U.S. regulators’ plans to limit asbestos in cosmetic talc products and scientific research on the health effects of talc.

Note that since the 1970s, exposure to asbestos has been recognized as an
important health hazard.  In 1972, the US agency OSHA limited
occupational exposure to asbestos.  Also,

The World Health Organization and other authorities recognize no safe level of exposure to asbestos.

Johnson & Johnson has been sued by

11,700 plaintiffs now claiming that the company’s talc caused their cancers — including thousands of women with ovarian cancer.

After three major jury verdicts that found Johnson & Johnson liable for cancers caused by asbestos in its baby power,

J&J
has said it will appeal the recent verdicts against it. It has
maintained in public statements that its talc is safe, as shown for
years by the best tests available, and that the information it has been
required to divulge in recent litigation shows the care the company
takes to ensure its products are asbestos-free. It has blamed its losses
on juror confusion, ‘junk’ science, unfair court rules and overzealous
lawyers looking for a fresh pool of asbestos plaintiffs

However, there now seems to be substantial evidence that the company’s public posturing is a smokescreen. While in the past Johnson & Johnson internal documents about its management decision making related to talc and asbestos were used in litigation,

Many were shielded from public view by court orders that allowed J&J to turn over thousands of documents it designated as confidential. [But] Much of their contents is reported here for the first time.

These showed,

The earliest mentions of tainted J&J talc that Reuters found come from 1957 and 1958 reports by a consulting lab. They describe contaminants in talc from J&J’s Italian supplier as fibrous and ‘acicular,’ or needle-like, tremolite. That’s one of the six minerals that in their naturally occurring fibrous form are classified as asbestos.

At various times from then into the early 2000s, reports by scientists at J&J, outside labs and J&J’s supplier yielded similar findings. The reports identify contaminants in talc and finished powder products as asbestos or describe them in terms typically applied to asbestos, such as ‘fiberform’ and ‘rods.’

In 1976, as the U.S. Food and Drug Administration (FDA) was weighing limits on asbestos in cosmetic talc products, J&J assured the regulator that no asbestos was ‘detected in any sample’ of talc produced between December 1972 and October 1973. It didn’t tell the agency that at least three tests by three different labs from 1972 to 1975 had found asbestos in its talc – in one case at levels reported as ‘rather high.’

The article shows that the company repeatedly found evidence that asbestos was present in the raw talc that went into its baby powder, first in 1957, and could be found at times in samples of the finished product since 1971.  Since the 1970s, Johnson & Johnson managers realized that the asbestos was a problem.  For example,

J&J research director DeWitt Petterson visited the company’s Vermont mining operation. ‘Occasionally, sub-trace quantities of tremolite or actinolite are identifiable,’ he wrote in an April 1973 report on the visit. ‘And these might be classified as asbestos fiber.’

J&J should ‘protect our powder franchise’ by eliminating as many tiny fibers that can be inhaled in airborne talc dust as possible, Petterson wrote. He warned, however, that ‘no final product will ever be made which will be totally free from respirable particles.’ Introducing a cornstarch version of Baby Powder, he noted, ‘is obviously another answer.’

Slightly later on December 14, 2018, the New York Times published its own story on asbestos in Johnson & Johnson talcum powder.  It corroborated the Reuters report while adding informative detail.  It started with:

An executive at Johnson & Johnson said the main ingredient in its best-selling baby powder could potentially be contaminated by asbestos, the dangerous mineral that can cause cancer. He recommended to senior staff in 1971 that the company ‘upgrade’ its quality control of talc.

Two years later, another executive raised a red flag, saying the company should no longer assume that its talc mines were asbestos-free. The powder, he said, sometimes contained materials that “might be classified as asbestos fiber.”

The carcinogen, which often appears underground near talc, has been a concern inside the company for decades. In hundreds of pages of memos, executives worried about a potential government ban of talc, the safety of the product and a public backlash over Johnson’s Baby Powder, a brand built on a reputation for trustworthiness and health.

Executives proposed new testing procedures or replacing talc outright, while trying to discredit research suggesting that the powder could be contaminated with asbestos, according to corporate documents unearthed by litigation, government records obtained by The New York Times through the Freedom of Information Act, and interviews with scientists and lawyers.

In one instance, Johnson & Johnson demanded that the government block unfavorable findings from being made public. An executive ultimately won assurances from an official at the Food and Drug Administration that the findings would be issued only ‘over my dead body,’ a memo summarizing the meeting said.

Thus, despite these warnings of asbestos in talcum powder, Johnson & Johnson continued to sell it.  There is certainly now strong reason to suspect that for decades Johnson & Johnson management has been denying its own fears about asbestos contamination of its baby powder, and doing its best to hide evidence of its hazards, thus benefiting the corporate bottom line, but allowing continued exposure of large number of people to a potentially hazardous, even fatal product.

The Business World Tries to Shrug It Off

Responding to the Reuters and New York Times story, many business pundits stated their confidence in Johnson & Johnson as an investment.  For example, Charley Grant wrote in the Wall Street Journal,

But while investors should be wary, they needn’t panic. J&J’s strong finances and diverse revenue base are good coping mechanisms.

Wells Fargo, per CNBC, opined

the selling based purely on the outcomes of any talc litigation is likely overstated.

But does Johnson & Johnson’s management really act on its belief that
its “first responsibility is to “doctors, nurses, and patients, to
mothers and fathers?” On CNBC,  Bill George wrote,

It is not plausible that these leaders knew nearly five decades ago that their iconic baby powder caused cancer and continued to market the product. This is a company whose leaders consistently try to do the right thing, admit their mistakes, and continue to develop life-saving products that restore the health of millions of people around the world.

While the plaintiffs’ attorneys may continue to pursue their cases, I feel confident that J&J will be shown to put the interests of its customers first, and maintain its reputation for the highest integrity.

I wonder if Mr George’s confidence was boosted by his previous work as a paid speaker for Johnson & Johnson, and former chairman and CEO of Medtronic, a company which has had its own share of ethical misadventures (look here)?  In any case, some recent history calls into question Johnson & Johnson’s “reputation for the highest integrity.”

Johnson & Johnson’s Long History of Ethical Misadventures

So, recent reports suggested that Johnson & Johnson willfully acquired a company that appears to have provided kickbacks to patients in apparent violation of US law in an effort to support high drug prices.  Furthermore, Johnson& Johnson appears to have concealed considerable evidence that one of its primary products might be dangerous in order to support the sales of a “‘sacred cow,’ as one internal email put it (per the Reuters report).

These are but  the latest in a long string of misadventures by the company, as we have been documenting over years.  (Our collected posts on Johnson & Johnson are here
An updated version of their legal record since 2010 is at the end of
this post.)

Perusing the list suggests that this giant company (with about $70
billion in yearly revenue) is a poster child for bad behavior by health
care organizations.  It has faced a multitude of allegations leading to
settlements, and sometimes findings of guilt.  The charges included many instances of deceptive and unethical marketing, some that promoted drugs or devices for use in situations in which they may have had harms outweighing their benefit, some that involved concealing knowledge of their risks, and some of selling adulterated drugs or defective products. 

So the new allegations of deceptive marketing meant to conceal a hazardous product are just the latest in the series.

What is striking is that the company and its management have not faced more consequences for this sorry track record.

Although the company has paid multiple fines and made numerous monetary settlements over the years, none have been big enough to affect its immense revenues.  Furthermore, ultimately the monies used to pay them came from all Johnson & Johnson employees in the form of smaller paychecks; customers, patients and the public at large in the form of higher prices; and only to some extent by investors in the form of slightly lower profits.  Meanwhile, it appears that the company’s top managers made an awful lot of money, possibly in part as rewards for the revenues produced by the misadeventures.

Former Johnson & Johnson CEO William Weldon, upon his
retirement in 2014, was to receive a retirement package estimated to be
worth from $143 to $197 million (look here).  In 2010, his total compensation was $29 million (look here).   According to the 2012 Johnson and Johnson proxy statement,
his 2011 total compensation was greater than $26 million. As far as I
can tell, Mr Weldon never suffered any negative consequences for his
company’s sorry record, and retired a very rich man. (look here).

Current CEO Alex Gorsky received  $25 million total compensation in 2014 (look here).  More recently, the New York Times reported his 2017 total pay was $22.8 million, making him the seventh highest paid health care executive in that year, by their accounting. 

While management made so much money, very rarely has anyone at the company who was involved in authorizing, directing, or implementing any of the bad behavior had to suffer any negative consequences, therefore appearing to enjoy impunity.

So what was to deter management from embarking on further misadventures, as long as the results might be enlarging management’s personal wealth?  

This is all in line with what we have been discussing for years.  In general, we have seen many legal settlements made by health care organizations of alllegations like fraud, bribery, and kickbacks
Despite the unsavory nature of the behaviors revealed by most
settlements, which often appeared to risk patient harms, the companies
involved usually have had to pay fines that were tiny
relative to their multi-billion dollar revenues.  They companies only
seldom have had to admit responsibility, and almost never did a
settlement cause company managers and leaders to 
suffer any negative consequences for enabling, authorizing, directing or
implementing the bad behavior.

This adds to the evidence suggesting that US health care is
rigged to benefit top insiders and their cronies, and as such, is part of a
larger rigged system.  We have previously discussed how market fundamentalism (or
neoliberalism) led to deregulation, which enabled deception, fraud,
bribery, and intimidation to become standard business
practices, and allowed increasing concentration of power by large
corporations. Managerialism allowed the top leaders of these
corporations and their insider cronies to amass increasing power and
money. Everyone else, other employees, stockholders of public
corporations, customers, vendors and suppliers, and the public at large
lost out.   In health care, these changes led to an increasingly
costly system which produced increasingly bad results for patients
and the public. 

We have called for true health care
reform to derig the system. Unfortunately, despite our hopes,
perceptions of a rigged
system may not always inspire honest reform. Instead, they can
enable the rise of demagogues and wouldbe dictators who promise only
they can solve the problem.  Donald Trump cried out that only he could
fix our problems and drain our swamps.  However, at least in terms of
policing white-collar crime, particularly in health care, he seems to be
letting the swamp waters rise.  And now he seems to have had his own record of impunity (look here).  

While we thus have bigger problems to solve than the impunity of health
care leaders, let us remember the need for wholesale, real health care
reform that would make health care
leaders accountable for what their organizations do, particularly when
these organizations misbehave.

Appendix – Johnson and Johnson Legal Record since 2010

 2010
– Convictions in two different states for misleading marketing of Risperdal
– A guilty plea for misbranding Topamax

2011
– Guilty pleas to bribery in Europe  by Johnson and Johnson’s DePuy subsidiary
– A guilty plea for marketing Risperdal for unapproved uses  (see this link for all of the above)
– A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)

2012 
 
– Testimony in a trial of allegations of
unethical marketing of the drug Risperdal (risperidone) by the Janssen
subsidiary revealed a systemic, deceptive stealth marketing campaign
that fostered suppression of research whose results were unfavorable to
the company, ghostwriting, the use of key opinion leaders as marketers
in the guise of academics and professionals, and intimidation of
whistleblowers. After these revelations, the company abruptly settled
the case (see post here).
–  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for
deceiving patients and physicians again about Risperdal (look here).
–  Johnson & Johnson announced it would pay $181
million to resolve claims of deceptive advertising again about Risperdal
(see this post).

2013
–  Johnson &
Johnson settled case by shareholders alleging that management made
misleading statements and withheld material information about
manufacturing problems (see this post)
–  Johnson &
Johnson Janssen subsidiary pleaded guilty to a charge of misbranding
Risperdal, and settled for a total of $2.2 billion allegations that it
promoted the drug for elderly demented patients and adolescents without
an indication, and despite evidence of its harms (see this post).
 –  Johnson &
Johnson DePuy subsidiary agreed to settle with multiple plaintiffs for
$2.5 billion allegations that it sold defective mental-on-metal
artificial hip, and hid evidence of its harms .
– Johnson &
Johnsonn Janssen subsidiary was found by two juries to have concealed
harms of its drug Topamax (see this post for this and above case).
– Johnson &
Johnson Ethicon subsidiary’s Advanced Surgical Products and two of its
executives agreed to settle charges by US FDA that is sold mislabeled
products used to sterilize equipment such as endoscopes (see this post).
– Johnson &
Johnson fined by European Commission for anticompetitive practices, that
is, collusion with Novartis to delay marketing generic version of
Fentanyl (see this post).

2014 
– Johnson & Johnson DePuy subsidiary settled Oregan state charges
that it marketed the ASR XL metal-on-metal hip joint prosthesis without
disclosing its high failure rate (see this post).

2015
–  Johnson & Johnson found by jury to have concealed harms of Risperdal.
–  Johnson & Johnson Ethicon subsidiary found by jury to have concealed harms of its vaginal mesh device.
–  Johnson & Johnson McNeil subsidiary pleaded guilty to marketing adulterated Tylenol. (see this post for three items above.)

2016
– Johnson & Johnson subsidiary Aclarent settled allegations that it
sold its Stratus device for unapproved uses.  Two former executives of
that subsidiary also were found guilty of distributing misbranded and
adulterated devices (see this post

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