Updated on: July 3, 2012

GlaxoSmithKline Pleads Guilty, Pays $3 Billion to Resolve Fraud Allegations

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Original story posted on: July 2, 2012

GlaxoSmithKline Pleads Guilty, Pays $3 Billion to Resolve Fraud Allegations, Failure to Report Safety Data

In what the Department of Justice reports as the largest healthcare fraud settlement in U.S. history, global healthcare giant GlaxoSmithKline LLC (GSK) agreed to plead guilty and pay $3 billion to resolve its criminal and civil liability.

The settlement comes from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices. The resolution is the largest healthcare fraud settlement in U.S. history and the largest payment ever by a drug company, said the Justice Department in a news release posted on its website.  

According to the DOJ, GSK agreed to plead guilty to a three-count criminal information, including two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about the drug Avandia to the Food and Drug Administration (FDA). Under the terms of the plea agreement, GSK will pay a total of $1 billion, including a criminal fine of $956,814,400, and forfeiture in the amount of $43,185,600, reported DOJ. The criminal plea agreement also includes certain non-monetary compliance commitments and certifications by GSK’s U.S. president and board of directors. GSK’s guilty plea and sentence is not final until accepted by the U.S. District Court, said the Justice Department.

GSK will also pay $2 billion to resolve its civil liabilities with the federal government under the False Claims Act, as well as the states. The civil settlement resolves claims relating to Paxil, Wellbutrin, and Avandia, as well as additional drugs, and also resolves pricing fraud allegations.

This resolution marks the culmination of an extensive investigation by special agents from HHS-OIG, FDA, and FBI, along with law enforcement partners across the federal government, the Justice Department said. 

Moving forward, GSK will be subject to stringent requirements under its corporate integrity agreement with HHS-OIG; this agreement is designed to increase accountability and transparency and prevent future fraud and abuse. Effective law enforcement partnerships and fraud prevention are hallmarks of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which fosters government collaboration to fight fraud, said the Justice Department. 

Criminal Plea Agreement

Under the provisions of the Food, Drug and Cosmetic Act, a company in its application to the FDA must specify each intended use of a drug. After the FDA approves the product as safe and effective for a specified use, a company’s promotional activities must be limited to the intended uses that FDA approved. In fact, promotion by the manufacturer for other uses—known as “off-label uses”—renders the product “misbranded,” the Justice Department said.

Civil Settlement Agreement

The Department of Justice said that as part of this global resolution, GSK has agreed to resolve its civil liability for the following alleged conduct: (1) promoting the drugs Paxil, Wellbutrin, Advair, Lamictal, and Zofran for off-label, non-covered uses and paying kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent, and Valtrex; (2) making false and misleading statements concerning the safety of Avandia; and (3) reporting false best prices and underpaying rebates owed under the Medicaid Drug Rebate Program.

Off-Label Promotion and Kickbacks

The civil settlement resolves claims set forth in a complaint filed by the United States alleging that, in addition to promoting the drugs Paxil and Wellbutrin for unapproved, non-covered uses, GSK also promoted its asthma drug, Advair, for first-line therapy for mild asthma patients even though it was not approvedor medically appropriate under these circumstances. GSK also promoted Advair for chronic obstructive pulmonary disease with misleading claims as to the relevant treatment guidelines. The civil settlement also resolves allegations that GSK promoted Lamictal, an anti-epileptic medication, for off-label, non-covered psychiatric uses, neuropathic pain, and pain management. It further resolves allegations that GSK promoted certain forms of Zofran, approved only for post-operative nausea, for the treatment of morning sickness in pregnant women. It also includes allegations that GSK paid kickbacks to healthcare professionals to induce them to promote and prescribe these drugs as well as the drugs Imitrex, Lotronex, Flovent, and Valtrex. The United States alleges that this conduct caused false claims to be submitted to federal healthcare programs, according to the Justice Department.

GSK has agreed to pay $1.043 billion relating to false claims arising from this alleged conduct. The federal share of this settlement is $832 million and the state share is $210 million, the Department of Justice reported.

The DOJ also said the off-label civil settlement resolves four lawsuits pending in federal court in the District of Massachusetts under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery.

Avandia: In its civil settlement agreement, the United States alleges that GSK promoted Avandia to physicians and other healthcare providers with false and misleading representations about Avandia’s safety profile, causing false claims to be submitted to federal healthcare programs. Specifically, the United States alleges that GSK stated that Avandia had a positive cholesterol profile, despite having no well-controlled studies to support that message. The United States also alleges that the company sponsored programs suggesting cardiovascular benefits from Avandia therapy despite warnings on the FDA-approved label regarding cardiovascular risks. GSK has agreed to pay $657 million relating to false claims arising from misrepresentations about Avandia. The federal share of this settlement is $508 million and the state share is $149 million, said the Department of Justice.


 

Price Reporting: GSK is also resolving allegations that, between 1994 and 2003, GSK and its corporate predecessors reported false drug prices, which resulted in GSK’s underpaying rebates owed under theMedicaid Drug Rebate Program. By law, GSK was required to report the lowest, or “best,” price that it charged its customers and to pay quarterly rebates to the states based on those reported prices. When drugs are sold to purchasers in contingent arrangements known as “bundles,” the discounts offered for the bundled drugs must be reallocated across all products in the bundle proportionate to the dollar value of the units sold. The United States alleges that GSK had bundled sales arrangements that included steep discounts known as “nominal” pricing, and yet failed to take such contingent arrangements into account when calculating and reporting its best prices to the Department of Health and Human Services. Had it done so, the effective prices on certain drugs would have been different, and, in some instances, triggered a new, lower best price than what GSK reported. As a result, GSK underpaid rebates due to Medicaid and overcharged certain Public Health Service entities for its drugs, the United States contends. GSK has agreed to pay $300 million to resolve these allegations, including $160,972,069 to the federal government, $118,792,931 to thestates, and $20,235,000 to certain Public Health Service entities who paid inflated prices for the drugs at issue, according to the Department of Justice.

Except to the extent that GSK has agreed to plead guilty to the three-count criminal information, the claims settled by these agreements are allegations only, and there has been no determination of liability, said the Justice Department.

Non-monetary Provisions and Corporate Integrity Agreement

In addition to the criminal and civil resolutions, GSK has executed a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General (HHS-OIG). The plea agreement and CIA include novel provisions that require that GSK implement and/or maintain major changes to the way it does business, including changing the way its sales force is compensated, to remove compensation based on sales goals for territories, one of the driving forces behind much of the conduct at issue in this matter, said the Department of Justice.

Under the CIA, GSK is required to change its executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct. GSK may recoup monies from executives who are current employees and those who have left the company. Among other things, the CIA also requires GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various healthcare payers, according to the Department of Justice.

DOJ said that over the last three years, the department has recovered a total of more than $10.2 billion in settlements, judgments, fines, restitution, and forfeiture in healthcare fraud matters pursued under the False Claims Act and the Food, Drug, and Cosmetic Act.

Court documents related to the settlement can be viewed online at www.justice.gov/opa/gsk-docs.html.

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Chuck Buck is publisher of RACmonitor.

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Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

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