Ethics of Behavior of Pharmaceutical Companies in the Market
1. Introduction
This report aims to answer questions of whether pharmaceutical firms are acting ethically and responsibly through analyzing the stakeholders involved and qualifying the ethical considerations raised of each issue: Deceptive Marketing, Pricing and Improper payments and gifts.
2. Primary Stakeholder Analysis
2.1 Market Stakeholders
Consumers
As immediate users of the products by Big Pharma firms, they are not only dependent on these products but also affected by the marketing practices. They possess urgency but lack power and legitimacy as they are unable to boycott the products due to the lack of substitutes, knowledge, and economic power as consumers in the pharmaceutical industry. Therefore, they belong to the category of marginal stakeholders as they possess a low threat and potential for cooperation with organizations.
Doctors and medical students
Being professionals in the field, doctors and would-be doctors have legitimacy and their actions are assumed to be ethical and appropriate by the public. They are the “middleman” of the pharmaceutical industry that links Big Pharma to consumers. They have economic power and informational power as they can refuse drug schemes and has the expertise to deem what is appropriate and beneficial for their patients, even though the scheme is lucrative. However, they rely on the research and asymmetric information provided by such firms to determine drug appropriateness. Therefore, doctors and medical students belong in the stakeholder type of mixed blessing as they pose a threat to Big Pharma firms but their potential for cooperation is also high from payments and gifts to influence their decision.
2.2 Non-market Stakeholders
Government & Regulators
The government comprising of the U.S Securities and Exchange Commission (SEC) and Food and Drug Administration (FDA), has an interest in the pharmaceutical industry due to its close relation and livelihood of the general public. They possess legitimacy and power, but not urgency as they are able to tighten business conduct by passing bills and laws. They also belong to the stakeholder type of mixed blessing as they are a threat for firms and from extensive lobbying force, they have a high level of cooperation with firms.
3. Ethical Analysis
The industry has been accused of unethical sales and marketing tactics focused on maximizing profits at the expense of consumers and intermediaries. There are many ethical issues involved in the case. These firms acted against its corporate social responsibility and for the purpose of analysis, the issues raised in the case will be classified into three broad categories: Deceptive Marketing, Pricing, and improper payments and bribes.
3.1 Deceptive Marketing
Deceptive marketing includes actions by Big Pharma firms creating drugs for insignificant health-related issues, overstating the drug’s effects on curing a disease which may cause other side effects and also promoting drugs that have not been approved for by FDA or the Health Sciences Authority (HSA). Such cases have led to unnecessary purchase and consumption of drugs, with intentions to increase sales of its product and the firm’s revenue at the expense of consumers.
These actions go against marketing ethics, which emphasize honesty and fairness in marketing. The U.S Consumer protection laws and the Singapore Association of Pharmaceutical Industries (SAPI) Code of Conduct are intended to provide customers with accurate, balanced, and scientifically valid data on products when making purchases. According to the Principle Approach, by creating a drug for insignificant diseases followed by aggressive marketing escalates this issue and is unethical as it violates the virtue of honesty.
In this case, for the drug Lamisil, a pill for toenail fungus, a non-serious ailment, was the fourth bestselling drug on the shelves. This is due to aggressive marketing and advertisement which lead consumers to have a mistaken perception of the importance of the drug by inciting health fears or making up maladies where the drug is the only cure. Therefore, there is a miscommunication between Big Pharma firms and its consumers where consumers showed a lack of understanding and making ill-informed purchases.
Furthermore, the utilitarian principle has also been violated. In this case, the benefits are increased revenues and profit margins at the cost of public health, corruption in society, and the death of consumers who were affected by the wrong drugs. The drug was not only insignificant in improving the health of consumers but it was also linked to at least 16 cases of liver failure, including 11 deaths, which are very high costs to bear for increased revenue. Situated in a lucrative industry, Big Pharma is unable to justify these tactics as a means of survival. Therefore, the utilitarian principle is violated as the benefits do not exceed the costs, and such aggressive marketing of unnecessary drugs not only violates the consumer’s right of being informed but also their right to safety.
Human rights are violated through marketing methods and off-label offenses are unethical. According to the Principle Approach as the right to information, health and safety are blatantly ignored when Big Pharma firms conduct false advertising and push drugs for off-label uses. They omit the truth about their research and manipulated the stakeholders. From the case, Pfizer illegally prescribed Neurotonin for maladies ranging from migraines to social disorders when it is not approved for such uses. Hiding crucial information from consumers where Big Pharma firms use consumers as a means to an end, is not justifiable, as the goal of purchasing a drug is to recover from diseases which were not met. Therefore, such acts are unethical as it violates the consumer's rights to being informed.
3.2 Pricing
Big Pharma firms have also violated legal principles and responsibilities where five companies list false wholesale pricing data in order to obtain more dollars from the government for its drugs through the Medicaid and Medicare program. Applying the Principle Approach, it is unethical, but maybe justifiable and acceptable when the Conventional Approach is applied.
Price gouging may be justified because it is done by many other firms like Turning Pharmaceuticals, Mylan Pharmaceuticals, and Gilead. The Conventional Approach thus compares the firms’ behavior of inflating drug prices and prevailing norms of acceptability as they have not been prevented from doing so. Therefore, this led Big Pharma firms to believe such practices are acceptable in the Pharmaceutical Industry.
Big Pharma firms engage in price gouging could also be due to the high cost to produce an approved drug for sale. In the early stages of research, most of the Research and Development cost is spent, as it is not easy to find a cure for medical ailments and the drug has to go through many clinical trials before regulatory agencies approve it. It is a costly and lengthy process to ensure a regular stream of innovative products thus; Big Pharma firms recoup their expenditure through aggressive marketing and hiking drug prices.
However, these misconceptions only represent a normative truth. When we consider the broader moral climate, the argument and reasoning are invalid and fallacious.
These inflated prices have violated the principles of utilitarianism and justice. It is evident that such practices are only beneficial to pharmaceutical firms to maximize profits and not to consumers. According to the SAPI Code of Conduct, “the health-care and well-being of patients is the first priority for Member Companies.” It can be argued that profits will be reinvested into Research and Development, however, the industry has been spending a fortune on remedies to cure trivial maladies while its drug research pipeline runs dry. Consumers suffer from an increased financial burden from expensive drugs, while the government also has to allocate more dollars and resources to Medicaid to pay for the drugs. Therefore, price gouging does not achieve the best outcome for society and violates the price of utilitarianism with a high human cost.
Price gouging also violates the principle of distributive justice where equality is observed. Inflating drug prices denies the lower to mid-tiered households access to drugs. The price inflation is unjustifiable compared to what is dictated by market demand and such allocation is unethical and unacceptable. The government has to also subsidize more for Medicaid and Medicare when it could allocate the budget to other industries in need. It is clear that the marketing and advertising methods are only meant to maximize profits and benefits to shareholders at the expense of its consumers and other stakeholders. Big Pharma firms are thus, neglecting its Corporate Social Responsibility and violating the principle of charity and virtue where the privilege should provide for lower-income families in the society.
3.3 Improper Payments and Gifts
Pharmaceutical firms are paying and incentivizing doctors and organizations to promote a certain drug. For example, Schering-Plough donated about $76,000 to a Polish Charity, Chudnow Castle Foundation with the wrong intentions and expectations of boosting drug sales. Doctors are also being paid $1,000 to $1,500 per patient for prescribing Intron. Doctors also signed contracts with firms for consulting services and being paid $10,000 with the purpose of keeping them loyal to the firm’s product.
The New York Times has found that 103 Doctors in Minnesota, who had been disciplined by the Minnesota Board of Medical Practice, received a total of $1.7 million in payments for research and marketing services rendered. These figures are only from one state in the US who made its records available for inspection. Furthermore, Big Pharma firms give an estimated $19 billion worth of gifts to physicians every year. An article published in the New England Journal of Medicine found that 94 percent of doctors had some type of relationship with the drug industry. The top 2 most frequent drug industry ties were food and drinks in the workplace with 83percen, followed by drug samples with 78 percent.
Section 7.5 of the SAPI Code of Conduct, it states “payments in cash or cash equivalents (such as gift certificate) must not be provided or offered to the HCPs. Gifts for the personal benefit of the HCPs (such as sporting or entertainment tickets, electronics items, etc.) must not be provided or offered.” Furthermore, according to section 8.1 of the SAPI Code of Conduct, it states “Giving away of ‘samples’ as an inducement to purchase is prohibited.” It is clear that doctors have breached the code of conduct by prescribing drugs based on financial incentives received from Pharmaceutical firms than the patient’s welfare.
Applying the Ethical Test Approach, such practices are unethical and unacceptable. It only passed the test of Ventilation, as such practices and actions have undergone internal approval from higher management. However, this might be due to groupthink, where employees’ opinions are disregarded and are influenced by the judgment of top management.
It has failed the test of common sense, by giving gifts and payments to promote the sale of the drug. Such implications result in an unreasoned increase adoption of a drug and they are being prescribed to patients when there is no need or demand for it. There will be inappropriate consumption of the drug which may even affect the patient’s health negatively.
Big Pharma firms have also failed the test of making something public, if such information were to be disclosed, there will be a backlash from the public from not only withholding information about their research on drugs but overstating the benefits of the drug’s effects and doctor’s being bribed. This will lead to the failure of the test of one’s best self as firms and doctors are not holding themselves to its highest self-esteem and going against the Principle of Virtues. Big Pharma firms and Doctors also fail the test of the Big Four as their action has fallen victim to greed, as firms aim to maximize profits and doctors being enticed to financial incentives from firms, jeopardizing the health and safety of consumers.
3.3.1 Lobbying
The pharmaceutical industry was the second most profitable industry in America. With the increasing influence, corporate power, and lobbying, the top ten pharmaceutical companies consist of 19.1 percent of the economy’s revenue. Big Pharma firms are able to channel these revenues and bribe the government and ward off regulations that are unfavorable to them. In 2010, the drug lobby contributed to Senator Harry Reid of Nevada, the election campaign in return of passing a bill or diminishing regulation passed pertaining to the healthcare industry.
Excessive lobbying and bribing government officials have violated the moral ethics of virtue and according to the Principle Approach of Utilitarian. As a government official, it is unethical to accept bribes or donations from organizations for the trade of favors. In return for an increased chance of being elected and funding, Big Pharma firms will benefit from the lack of regulations and the passing of bills that are beneficial for the industry in the future. Ultimately, it provides Big Pharma firms more political power and allows them to continue to exploit consumers for increased revenue. The cost to society precedes the benefit as not only do consumers suffer, it reflects that the government is corrupted who no longer has the best interest of its people.
3.3.2 Promotions to Medical Students
Pharmaceutical firms giving free promotional items like pens and notepads given to medical students do not seem to be excessive. However, doing it consistently, it is clearly a marketing tactic to pressure students into adopting and favoring their drugs when they become doctors. By readily accepting these gifts from Big Pharma firms, reflects that they already have influenced future doctors. Furthermore, these firms can easily sponsor and provide grants to students who are financially unstable for their education needs and make them biased to their products. This means that educational institutions are also not spared and these firms and exert influences on the educational content taught to students.
This ingrains a wrong ethical value in them, as accepting gifts from Big Pharma firms in the future is a norm which could lead to ethical issues in the future. It is evident from the case, this will have a profound effect on students who go on to become doctors as they have cultivated this unethical industry-wide behavior where accepting pens and notebooks will eventually become controversial gifts. This allows Big Pharma firms to exert more influence on them and making it difficult to reject. Such practices have turned these young doctors into dishonest before their careers as doctors started and the oath to help patients ethically is already breached.
It can be argued that these students will not prescribe the wrong drugs to patients when they eventually become doctors and instead, be faithful and uphold the oath taken to be ethical and prioritize the patient’s welfare. However, due to the influence of Big Pharma firms on them, this line of opinion has been blurred and doctors are faced with an ethical dilemma and a conflict of interest. Furthermore, if doctors are caught whistleblowing on the firms, they may lose the financial incentives they have been receiving from them.
4. Conclusion
Pharmaceutical firms choose to be unethical is mainly due to personal gain and interest. The issues covered all stem from hopes to maximize the profitability of the firm. It can be argued that advertisements could help educate the public, gain a competitive advantage, reduce R&D expenses and the increased revenues are reinvested into R&D to advance the industry, which ultimately benefits the health of society. It may seem that the end justifies the means but, in this case, the means did not result in the desired end. Pharmaceutical firms are spending significantly more on marketing compared to R&D thus, consequentialism is inapplicable for this case.
Moving forward, there is a need for improvement of the industry’s ethical climate. Firms need to be more transparent through ethics audits, stricter laws, and punishment for violators, and whistle-blowing mechanisms. Doctors should be honest and respect the oath taken to help those in need and not be influenced by incentives to prescribe the wrong drugs to their patients. To reduce deceptive marketing, implementing reporting mechanisms like helplines provides means for employees to report allegations of unethical conduct, and increases the chances for whistle-blowing. Lobbying may be legal, but they are not ethical. Therefore, an integrity-based approach is as important as compliance-based approaches to improving the overall ethical climate in the industry.
