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Ethical and Legal considerations in DTC marketing: the case of Pharmacare – Compcare

Ethical concerns in DTC (Direct to Consumer) Marketing : Pharmacare – Compcare case. 

Ethics are a major concern in marketing. How the organizations market their products and services is a very important concern for both marketers and customers. Honest marketing can deliver the expected value and deceptive practices can harm both the producer and the consumer. In the business world’s history, there have been so many cases of ethical violations by companies where they used deceptive marketing techniques to derive financial benefits. Marketing is meant to inform, and not to deceive. It is aimed at benefiting the stakeholders and not to harm them for petty gains.  It must create, communicate and deliver value in a manner that benefits the customers and community. After all, the focus of marketing has to be on creation of value and on establishing meaningful relationships. Still, several companies have used deceptive marketing tactics to gain financially in the past. Especially, in case of Direct to consumer marketing there have been several such cases. Product regulation also lays emphasis on honesty and social responsibility as key ethical concerns.  Apart from it, in case of the intellectual property rights, the rights of the inventor are a key ethical concern.  The inventor or the author must be given his due credit when the product is used.

Pharmacare has committed all the three types of violations discussed above. First of all, Pharmacare did not remain careful of its social responsibility whether it was in terms of marketing or product safety.  It did not act in a manner that could be called socially responsible. The company endangered several lives by hiding key information.  It is just an example that companies do not hesitate from adopting unethical practices in the area of marketing and advertising while chasing profits.  Marketing must be socially responsible. So, if a company is socially responsible it will not hide key information regarding its products in a way that can harm its consumers.  Apart from it, Pharmacare’s products are not safe. So, the company has missed on both points, social responsibility as well as product safety. Despite knowing that its products were not safe, the  brand continued to sell products that it must have recalled from the market. In order to overcome it, marketing related difficulties, the brand also asked the doctors for fictitious lists of patients that it could use to continues its practices.

Pharmacare tried unethical ways to market and sell its AD23 drug. The brand has not acted responsibly but instead its brand is driven only by profits. While being concerned for profits, Pharmacare did not feel concerned for the patients’ health. Pharmacare knew that the product could have harmful effect on the patient’s health and yet it continued selling. This is a big problem since once the businesses forget the importance of ethics, what happens is that they start missing on their social responsibility. Pharmacare is also faced with the same issue. Of all the concerns it is faced with, the most important one is patient safety.

The problem is intense in case of the pharmaceutical companies which while trying to market their products in unique ways, start ignoring the ethics of direct to consumer marketing. In 1985, US had made Direct to consumer marketing legal. However, it was not until 1997 that Direct to consumer marketing really took off.  FDA eased its rule related to public declaration of all the side effects of a product in the form of a detailed list in the infomercial. From then onwards, the popularity of Direct to consumer marketing caught on and a large number of companies started using it. Apart from US, there is just one other country where Direct to Consumer marketing is legal which is NewZealand. The purpose of DTC marketing is to inform the public regarding available treatment options. However, this is not always the truth which is because the companies are no more required to inform the public in detail about the side effects of their drugs, once FDA eased the obligation. So, the companies are using DTC marketing to increases sales by driving choice rather than informing the public. The bigger problem is that DTC marketing is not just being used to entice the customers but also the doctors. On the one hand DTC marketing entices customers to buy the advertised products, on the other it entices doctors to prescribe them. So, overall whatever has come out of DTC marketing has not been highly beneficial for either the customers or the society.  

There is also a  second problem that results from DTC marketing – off label uses. Off label uses mean the uses not approved by FDA.  Due to the increase in the off label uses, DTC marketing has come under pressure. The democrats had challenged the practice in January 2008. A Congress order was passed to investigate a large number of such advertisements including the advertisement of Cholesterol drug Lipiter by Pfizer. In such advertisements actors are used to play doctors and suggest the use of the drug for the patients. Ten months after Congress ordered the investigation, the industry announced that it was in the process of updating its voluntary standards.

The companies had mainly been using Direct to Consumer marketing methods to gain short term profits. The sales were being driven high but the customers who were ignorant of the side effects were bearing them unknowingly. Pharmaceutical industry was involved in marketing practices that were not ethically sound. These were only some of the disadvantages of DTC marketing. It was leading inappropriate prescription, producing diseases as well as encouraging people to over-utilize drugs.

FDA is the main agency that regulates the compounding pharmacies. These compounding pharmacies do the job of generating new drug combinations or altering the composition of the existing ones to suit the needs of the patients. Barack Obama signed into law the Drug Quality and Security Act on Nov 27, 2013. This act encourages compounding pharmacies to register with the FDA. This will benefit the compounding pharmacies by classifying them as outsourcing facilities and enabling them to sell drugs in bulk to hospitals and other health care facilities. A new section of 503 B was created under the FDCA by this act. This section allows the compounding pharmacies to become outsourcing facilities.

As per the act, an outsourcing facility must:

  1. Comply with the CGMP requirements.
  2. FDA based on a risk based schedule will inspect the facility.
  3. The facility must meet some other specific conditions too like reporting the adverse conditions as well as providing important information regarding the drugs compounded at these facilities.

FDA and there are some other state authorities too to address the pharmacy compounding activities. These facilities are required to label the drugs adequately for use as well as provide the required information FDA asks for. Reporting nay adverse conditions is equally important. Compcare has failed to do these things. It did not report any of the adverse conditions arising from the drug’s use. It can face legal issues because it has hidden the facts related to the side effects of the drugs. It has hidden the side effects of the drug intentionally. Unless Compcare can report the required facts, it will have to bear the legal implications that arise from its violations.  However, Compcare’s liabilities are major which is because its side effects are fatal and have caused several fatal heart attacks. 

Pharmacare’s main motive behind the creation of the Compcare was to escape the FDA’s scrutiny and regulations.  Compare is a compounding pharmacy selling AD23 as its own invention. Compcare was able to escape FDA scrutiny and sell AD23 without getting proper approval. Thus, Pharmacare used the holes in law to pursue profits.  When it comes to John’s rights in the case, if the company had employed him for the sole purpose of inventing the drug, the company holds exclusive rights to the drug. If the case is otherwise the employer and the employee will share the rights. John led the team that developed a new drug combination for treating Alzheimer. The company has not compensated John and his team rightly for their invention.   Neither have they been provided with due credit and nor have they been compensated financially for it. So, there is scope for John to claim the ownership of the invention. He must be compensated adequately for it whichever way the company and John consider appropriate.

There are several ways that the company can compensate John:

  • A share in the profits earned on the sale of the drug
  • Financial compensation for the invention.
  • Royalty over the sales of AD23.

There was another similar case of intellectual theft that had come to light in US. The folly was committed by a China based company that made and sold wind turbines. The Sinovel company of China was accused of having stolen technology from the American SuperConductor   Co. of Devens. If convicted the Chinese company faces several years of probation plus millions as fines. During the recent years, cases of intellectual theft by the Chinese companies have increased a lot. Several of the Chinese companies were caught stealing or trying to steal technologies from US firms. Still, these cases could be just a small portion of the bigger picture. The Chinese firms might be involved in more sophisticated stealing.  The software used in the Chinese firms’ wind turbines was actually stolen from the US firm, American Super-Conductor (AMSC). Two of the Chinese firm’s executives were indicted in the US federal court for this reason.  The dispute with China over economic espionage has grown intense with this case. Apart from the loss of reputation, if the charges against the company are proved it will have to pay millions in the form of fines apart from the probation that could last several years. Due to such cases, it is not only the reputation of the firms involved in the theft that is lost but also their home countries.

Now, back to Compcare. Its AD23 has side effects that are quite serious and can invite legal action. A large number of its users have had serious and even fatal heart attacks. The drug is lethal and therefore the company can face a ban on production apart from the fines and compensation for those affected. Compcare has kept exaggerating the benefits of its drugs and to suppress the side effects of the drugs. There are several other problems too with Compcare’s style of business. Apart from flawed advertising, the company failed to do enough research on its medications and issue a recall when the product’s flaws were noticed. Soon after Compcare was sold to Wellco, AD23 was found to be linked with more than 200 deaths. Even John, the maker’s wife died of using the drug. Pharmaceutical companies must make safe drugs that should be brought to the market only after full testing. The drug companies must not responsibly include any warnings about the side effects or the health risks associated with the drugs. Its uses and risks too must be advertised appropriately. In this regard Compcare or let’s say Pharmacare has cleverly shunned its responsibility and downplayed the health risks of its drug.  The affected or the relatives of the affected can file a wrongful death lawsuit against Pharmacare. If the litigants file a case against the company, it will be faced with strict legal action including product recalls.

In the Pharmacare’s case, John can claim to be the whistleblower. A whistleblower is someone who reports a significant wrongdoings or violations of law inside an organization. John has reported a wrongdoing that was not just against the law but was also a threat to the public health.  The company was involved in a fraud that had given rise to a severe risk to public health.  Internally, the whistle blowers can report abuse or wrongdoings to the seniors. In several case, these wrongdoings are reported to the external authorities. The whistle-blower can report the issues to the appropriate regulatory agencies or to media or to even the other groups that may be concerned with the issue. There are media groups, watch dog agencies as well as other groups like law agencies and other state agencies to report to. In several of the past cases, the whistle-blowers have been provided with financial rewards as well as protection against any kind of retaliation. In case of the JP Morgan fraud case, the whistle blower was reportedly rewarded with $69.3 million. JP Morgan agreed to pay the government $614 million for settlement. US law protects the whistle blowers from any kind of retaliation or any other form of adverse action. There is a wrongful termination law that prevents retaliatory action against the whistle-blowers. It protects the whistle blowers not just from wrongful termination but also from any kind of discrimination or other pressures that the company can use. Most important notable thing is that there are statuettes with provision for monetary rewards for the people who reports such unethical acts.     

The Federal Whistleblower Act is also an act that protects that Federal employees from the executive branch.  The Federal agencies are required by the act to take appropriate action over the issues related to whistleblowing.  This act also created the Office of Special Counsel. It investigates complaints by federal employees who have faced retaliation for whistleblowing. Apart from it there is the False Claims act that protects the whistle-blowers. It provides the employees in the private sector that report frauds by the government contractors. This act provides for monetary rewards for the whistle-blowers under a Qui Tam claim. The provisions of these acts for the protection of whistle-blowers are supervised by the OSHA. Apart from the Federal laws for the protection of the whistle-blowers, there are several state laws too. John as a whistle-blower has exposed dangerous acts and he must be provided both rewards and protection under these laws. John can argue to claim his position as a whistle-blower that AD23 constitutes a major threat to human health. There have been reported several deaths that can occur due to the use of the drug. The company also withheld information that could give rise to negative publicity. John deserves both whistle-blower status and protection for having uncovered the wrongdoings of Compcare.

In this case, it is evident that the acts of Compcare have given rise to severe health risks for the general public. It is liable of having been involved in unethical and deceptive marketing and advertising practices. Several deaths have resulted from Compcare’s greed. It shows that the companies do not just keep their ethics aside to pursue their financial interests but also exploit the loopholes that exist in law to maximize their profits. There are several complications related to Direct to Consumer Marketing of drugs. It is because they touch the consumers directly, their regulation is very important. Their effect on the consumers can be major. They affect both customers and the doctors. Even the doctors are enticed to prescribe the advertised drugs and the patients are encouraged to buy and overuse them. Illegal or unethical sales and marketing of these drugs may also result in patients’ deaths who are in the dark about the ill effects of the drug. Pharmacare has not properly credited the maker of the drug either which is a case of intellectual theft. This issue cannot be overlooked either. Hiding information from the FDA and the public is also one of the crimes committed by Pharmacare. Whenever, companies put ethics aside the can jeopardize the society’s concerns. In such a situation, it becomes the duty of people like John to inform the appropriate authorities of the unethical acts. Simultaneously, laws protecting the whistle blowers become absolutely necessary.  Pharmacare is concerned for nothing except profits. Neither it is public health and nor law that Pharmacare is concerned for. The risks are pretty bog because there are fatal side effects of the drug Pharmacare created. This case shows that there is a need to establish tighter control over both Direct to Consumer marketing and the compounding pharmacies.

Sources: https://www.who.int/bulletin/volumes/87/8/09-040809/en/

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3278148/

 

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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