From the editorial page of the Wall Street Journal ...
Kathleen Spitzer
The Administration targets a drug CEO in a troubling precedent.
Health and Human Services Secretary Kathleen Sebelius made her political name in Kansas, though we wonder if she's getting special advice from Eliot Spitzer. Her department's latest attack, on the CEO of Forest Laboratories, is straight out of the former New York Attorney General's bullying playbook.
Forest Labs entered into a federal plea agreement in September over misconduct in its marketing of antidepressants Celexa and Lexapro. The allegations were among a rash of government suits claiming that marketing to doctors common among drug companies amounted to fraud against Medicare and Medicaid. The charges were odd given their implication that major companies would be dumb enough to try to hoodwink their biggest customer.
The charges also had a political flavor as an attempt to blame drug companies, rather than the fee-for-service design of the federal programs, for runaway costs. But some companies including Forest chose to settle rather than engage in extensive litigation.
In any case, the federal complaint contained no suggestion that Mr. Solomon was involved with, or even aware of, misconduct. And the question of his continued leadership was never part of the plea deal.
Only after a federal court ratified the deal in March did HHS drop its intent-to-ban bomb. Mrs. Sebelius unearthed a dusty provision in the Social Security Act that allows officials to bar executives of health companies from doing business with the government when the firms are guilty of criminal misconduct.
The feds have rarely invoked this awesome power, given the potential for coercive abuse. But Mrs. Sebelius seems bent on making it more common policy and says she can employ it even against executives who had no knowledge of an employee's misconduct. A year ago Mrs. Sebelius used it to dismiss the CEO of a small drugmaker in St. Louis.
This is a threat to every health CEO in America. If Forest wants to continue to sell its drugs to Medicare, Medicaid and the Veterans Administration—the biggest buyers of pharmaceuticals—it will have to change management. Losing the federal government as a customer is potentially crippling to a drug company.
HHS says its action is about holding corporate CEOs accountable, but it looks more like the Administration's latest bid to intimidate the health-care industry into doing its bidding on prices, regulations and political support for ObamaCare. This is the same agency that has threatened insurers with exclusion from new state-run health exchanges if they raise their premiums more than Mrs. Sebelius wants, or if they spread what she deems to be "misinformation" about the President's health bill.
The hammer on Forest Labs "reinforces everybody's worst fears—that this Administration won't do business with anybody that doesn't completely agree with its policy initiatives. Not only will it refuse to even have the argument, it will actively destroy these people," says Peter Pitts, a former Food and Drug Administration official who now runs the Center for Medicine in the Public Interest.
The precedent here is also a recipe for much more litigation. Regulators aren't above bringing flimsy cases, and corporations often settle them simply to avoid huge legal bills and additional public relations risk. If the Obama Administration intends to view every such settlement as an admission of guilt and then dictate who can run the company, you can expect a lot more litigation.
Forest Labs is sticking by Mr. Solomon, saying the exclusion is "unjustified." But even the company has acknowledged that if Mrs. Sebelius implements her ban, Mr. Solomon would be forced to step down at least temporarily while the company takes her to court. Every CEO in America will get the message that his job is at risk if he quarrels with an Administration's bureaucratic orders.
This reminds us of a similar exercise by the Justice Department against former General Re CEO Joseph Brandon. Mr. Brandon cooperated in an investigation into a 2000 reinsurance transaction between Gen Re and AIG. But the feds leaned on Warren Buffett, the chairman of Gen Re parent Berkshire Hathaway, to fire him. Mr. Buffett praised Mr. Brandon but still sacked him in 2008, though later the feds closed the case with no action against Mr. Brandon.
CEOs are accountable for their actions, but it is simply unjust for a powerful regulator like Mrs. Sebelius to threaten a company with ruin if it doesn't dismiss a CEO who has had no formal charges or proof of wrongdoing brought against him. It's another example of how this Administration views private companies as little more than agents of greed that must be made examples of when the political need arrives.
