A terribly bad idea: US vs. Forest Labs

The federal government is trying to force out the CEO of Forest Labs and that’s terribly troubling. From the Wall Street Journal (U.S. Effort to Remove Drug CEO Jolts Firms):

The Health and Human Services department startled drug makers last year when the agency said it would start invoking a little-used administrative policy under the Social Security Act against pharmaceutical executives. This policy allows officials to bar corporate leaders from health-industry companies doing business with the government, if a drug company is guilty of criminal misconduct. The agency said a chief executive or other leader can be banned even if he or she had no knowledge of a company’s criminal actions. Retaining a banned executive can trigger a company’s exclusion from government business.

In this case Forest CEO Howard Solomon hasn’t been accused of anything, but if the government bans him from doing business with it then he is effectively fired. That’s because government programs such as Medicare, Medicaid and the Veterans Administration are an important part of the business.

It’s really not a good idea for the government to meddle this way, and it sets a bad precedent for other companies in health care and other industries. The government’s motivation seems to be that large monetary penalties aren’t doing the job. But the result will be to stultify companies in the industry at a time when we really need innovtion.

Conservatives may argue that the problem stems from Obama’s policies that grow the federal role as a buyer of health care products and services. But that’s not really the case. The big growth in pharma purchases came as a result of the Republican-led Medicare Part D drug benefit. And in any case Medicaid and other federal purchases of drugs were already sufficient to sway companies’ decision making.

The federal overreach is consistent with the post 9/11 attitude that the ends justify the means, especially when it comes to federal action against fraud. It’s a shame we’ve gotten to this point.

April 27, 2011

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