DOJ Cites Largest U.S. Health Fraud Settlement
Key Development: GlaxoSmithKline to pay $3 billion in resolving
criminal and civil cases involving drug promotion, including allegations of
Next Steps: Under a corporate integrity agreement, the drug company
commits to changes in how it compensates employees for promoting drugs.
Corporate executives also are subject to losing compensation, if found to engage
in violative behavior.
By David Pardo
London-based pharmaceutical company GlaxoSmithKline has agreed to plead
guilty and to pay $3 billion to resolve its criminal and civil liability arising
from what the Department of Justice called 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, DOJ announced July
The resolution is the largest health care fraud settlement in U.S. history
and the largest payment ever by a drug company, DOJ said. GSK announced in
November 2011 that had reached an agreement in principle with the government and
would pay $3 billion (214 HCDR, 11/4/11).
As part of the resolution, GSK agreed to plead guilty to a three-count
criminal information under the Federal Food, Drug, and Cosmetic Act, including
two counts of introducing misbranded drugs, Paxil and Wellbutrin (both of which
are approved for treating depression), into interstate commerce and one count of
failing to report safety data about the diabetes drug Avandia to the Food and
Under the terms of the plea agreement, which is subject to approval by the
U.S. District Court for the District of Massachusetts, GSK will pay a total of
$1 billion, including a criminal fine of $956 million and forfeiture in the
amount of $43 million.
GSK also is paying $2 billion to resolve its civil liabilities with the
federal government under the False Claims Act, as well as with the states, DOJ
The civil settlement resolves claims relating to Paxil, Wellbutrin, and
Avandia, as well as additional drugs, and also resolves pricing fraud
allegations, the government said.
As part of the global resolution, GSK agreed to resolve its civil liability
for the following alleged conduct:
the drugs Paxil, Wellbutrin, Advair, Lamictal, and Zofran for off-label (i.e.,
not approved by FDA), noncovered uses, and paying kickbacks to physicians to
prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent, and
false and misleading statements concerning the safety of Avandia; and
false best prices and underpaying rebates owed under the Medicaid Drug Rebate
In addition to the criminal and civil resolutions, GSK has executed a
five-year corporate integrity agreement with the Department of Health and Human
Services Office of Inspector General, DOJ said.
Under GSK's agreement
with HHS OIG, the drug company will refrain from rewarding or disciplining its
pharmaceutical sales representatives “based upon the volume of sales of [the
company's] products” within the representative's territory. GSK will use its
existing Patient First program, which it implemented in July 2011, to evaluate
employees. The agreement also contains a “financial recoupment program” that
subjects an executive who is discovered to have been involved in “significant
misconduct” to forfeiting up to three years of bonuses or other “long term
Mary Anne Rhyne, GSK's director of US Media Relations, told BNA July 2 that
the Patient First program “is not new. This is one of the certain fundamental
changes to our procedures for compliance, marketing and selling in the [United
States] that we have made to meet society's expectations and to ensure that we
operate with high standards of integrity and that we conduct our business openly
“We implemented this new incentive compensation system for our professional
sales representatives who work directly with health care professionals,” Rhyne
“The new system eliminates individual sales targets for these representatives
as a basis for bonuses, and instead bases incentive compensation primarily on
sales competency, customer evaluations and the overall performance of their
business unit,” Rhyne said.
Kevin Colgan, spokesman for GSK, told BNA July 2 that Patient First uses
“robust methodology” to evaluate employees. Colgan added that Patient First is
“proprietary” to GSK and thus could not provide additional information.
Erika A. Kelton, an attorney with Phillips & Cohen
LLP, Washington, who represents two of three whistleblowers who brought
claims against GSK, told BNA July 2 that the corporate integrity agreement
breaks new ground by allowing the use of “clawbacks” to recoup executive
compensation, which is a “new pressure point about personal responsibility.”
Aside from GSK's guilty plea to the three-count criminal information, the
claims settled by these agreements are allegations only, and there has been no
determination of liability, DOJ said.
The resolution of the GSK case follows several other large settlements, or
potential settlements, involving the government and drug manufacturers.
In November 2011, Merck agreed to pay $950 million to resolve criminal
charges and civil claims related to the promotion of the discontinued painkiller
Vioxx (226 HCDR, 11/23/11).
In October 2011, Abbott Laboratories disclosed in an 8-K filing with the
Securities and Exchange Commission that it has set aside $1.5 billion in
litigation reserves in connection with a DOJ inquiry into the possible off-label
marketing of its anti-seizure medication Depakote.
And in 2009, drug giant Pfizer Inc. paid $2.3 billion to the federal
government--the largest amount at the time in a health care settlement--for
illegally marketing the anti-inflammatory drug Bextra and three other drugs for
uses that FDA had not approved. Pfizer's 2009 deal involved payment of a $1.2
billion criminal fine and resolution of civil False Claims Act allegations (169
Also in 2009, Eli Lilly and Co. agreed to pay more than $1.4 billion to
resolve criminal and civil allegations that it promoted its antipsychotic drug
Zyprexa for off-label uses (10 HCDR, 1/16/09).
In a July 2 statement, Sidney Wolfe, the director of Public Citizen's Health
Research Group, said the announcement “of the largest health fraud settlement
ever reached between a pharmaceutical company and federal and state governments
demonstrates that despite the seemingly large sums, the fines imposed on
pharmaceutical companies for dangerous and illegal conduct pale in comparison to
the profits generated from such activity.”
Wolfe said, “The industry is therefore tacitly encouraged to continue its
illegal activity.” He added, “Until more meaningful penalties and the prospect
of jail time for company heads who are responsible for such activity become
commonplace, companies will continue defrauding the government and putting
patients' lives in danger.”
According to settlement documents, GSK is represented by Goeffrey Hobart and
Matthew O'Connor, with Covington & Burling LLP, in Washington.
Text of documents in the GSK case are at http://www.justice.gov/opa/gsk-docs.html.
The corporate integrity agreement is at http://www.justice.gov/opa/documents/gsk/hhs-oig-corp-integrity-agreement.pdf.