Academic journal article The Government Accountants Journal

A Multi-Disciplinary Approach to Problem Solving: The Generic Drug Scandal

Academic journal article The Government Accountants Journal

A Multi-Disciplinary Approach to Problem Solving: The Generic Drug Scandal

Article excerpt

In June 1988, Representative John Dingell (D-Michigan) asked the Inspector General (IG) of the Department of Health and Human Services to undertake a full scale investigation of possible corruption in the generic drug approval process. Dingell was, and still is, Chairman of the United States House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations. Later calling the results of the probe "a dismal picture of an industry contaminated by corruption, fraud, false statements and/or major manufacturing malpractice" (Valentine, 1990), he had based his request on the results of a private investigation by a major generic drug company. That investigation revealed possible illegal activities on the part of drug companies and Food and Drug Administration (FDA) staff who had conspired to improperly influence the FDA generic drug approval process. The scandal rocked public confidence in generic drugs as inexpensive, but effective substitutes for more costly brand name products. It also tarnished the reputation and morale of FDA as a public regulatory agency.

Over the next several years, IG investigations led to the conviction or guilty pleas of 24 generic drug company officials for fraud, racketeering, or obstruction of justice and five former FDA employees for illegal receipt of gratuities. IG audits revealed internal control weaknesses which left the approval process vulnerable to this corruption. And finally, through interviews with drug companies, IG evaluators reinforced and clarified the severity of the problem. The combined results of the investigations, audits and evaluation helped FDA take the actions necessary to restore integrity to the approval process.

This article describes generic drugs, the FDA approval process and the interdisciplinary approach of the Office of Inspector General (OIG)--using investigations, audits and evaluation--to address the underlying problems of the generic drug scandal.


All new drugs marketed in the United States must undergo a rigorous approval process by the FDA. The FDA review is based on lengthy clinical trials conducted by the manufacturer to insure drug safety and effectiveness. Because of the high cost of developing and testing a new drug, companies obtain patents or exclusive rights for it. No other manufacturer may sell the same drug during the 17-year patent period. These new drugs are usually referred to as brand name drugs. After the patent period expires, other companies may apply to FDA for approval of a generic version of the brand name drug. Generic drugs basically are copies of the brand name drugs. They must contain the same basic active ingredients and be bioequivalent; that is, the active ingredients must be absorbed into the body at the same rate and extent as the brand name drug.

The first approved generic drug has a tremendous advantage in the marketplace. Without having to expend the resources to develop a new drug and test it in clinical trials, generic drug manufacturers can set their purchase price far below the brand name drug. As a result, cost-conscience consumers often buy the generic one. The first generic drug on the market has a monopoly until others get FDA approval. Once others do, the first company has already established its customer recognition and market share. Experience has shown that the first generic drug maintains most of its share after others enter the market.


Prior to 1984, drug companies wanting to develop generic equivalents had to undergo a fairly rigorous and costly FDA approval process. Their New Drug Application (NDA) had to show that their generic substitute was safe and effective on the basis of their own or other well-published clinical studies. Congress overhauled this procedure by passing the Drug Price Competition and Patent Term Restoration Act of 1984. In an effort to speed up the process and reduce consumer drug costs, the Congress created an Abbreviated New Drug Application (ANDA). …

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