GlaxoSmithKline agrees to pay $750 million penalty for fraud

The pharmaceutical manufacturer will admit it sold faulty batches of drugs to Medicare and Medicaid.

By Doug Trapp — Posted Nov. 8, 2010

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Attorneys representing the Health and Human Services Dept., states and a whistle-blower announced on Oct. 26 that pharmaceutical manufacturer GlaxoSmithKline will plead guilty to selling faulty drugs to Medicare and Medicaid and pay $750 million in penalties. The agreement is the latest milestone in a federal effort to combat Medicare and Medicaid fraud.

The GSK payments will be split among the federal government, an undetermined number of states and a former GSK employee-turned-whistle-blower. A date for the plea hearing has not been set, according to a statement from the U.S. Attorney's Office for the District of Massachusetts.

Whistle-blower Cheryl Eckard, a former GSK quality assurance manager, will receive about $96 million of the $436.4 million federal share. The award is the largest to an individual under the False Claims Act, according to Justice Dept. spokesman Charles Miller. The act's whistle-blower provisions allow private citizens to sue on behalf of the United States and share in any recovery. Eckard filed the original complaint in February 2004, according to her attorneys, Getnick & Getnick of New York.

The previous overall largest False Claims Act whistle-blower payment was more than $100 million to two individuals as part of a $1.7 billion Medicare and Medicaid fraud settlement with hospital chain HCA Inc., announced in June 2003.

States will receive up to $163.6 million in the GSK case.

The case is also the latest Medicare and Medicaid fraud recovery under an effort by HHS and the Dept. of Justice, known as Health Care Fraud Prevention and Enforcement Action Team, or HEAT Task Force. The team, unveiled in May 2009, helped recover nearly $3 billion in Medicare and Medicaid fraud in fiscal 2009. The national health reform law includes $350 million during the next decade, among other measures, to combat fraud in the health system.

The GSK settlement will discourage pharmaceutical companies from producing poorly made drugs by empowering employees to report problems, according to Neil Getnick, managing partner of Getnick & Getnick. This is the first time the False Claims Act has been used to uphold federal drug manufacturing standards.

"Now every employee who works with manufacturing issues -- from quality assurance executives like Cheryl Eckard to machine operators -- has a viable option if they have evidence that management is putting profits ahead of patient safety by letting bad products out the door," Getnick said.

The $750 million GSK penalty is based on the net sales of four drugs, said Jill Butterworth, spokeswoman for Massachusetts Attorney General Martha Coakley, who also participated in the agreement.

As part of the plea, GSK will admit to selling limited numbers of faulty batches of the drugs to Medicare and Medicaid. The drugs -- manufactured at GSK's Cidra, Puerto Rico, facility between 2001 and 2005 -- were anti-nausea medication Kytril, topical antibiotic Bactroban, antidepressant Paxil CR, and type 2 diabetes drug Avandamet.

Federal attorneys said they will pursue similar cases. "The knowing, unlawful distribution of drugs whose strength, purity and quality are not reliable undermines the integrity of our health care system, and we will continue to pursue these types of violations," said Tony West, assistant attorney general for the Justice Dept.'s Civil Division.

GSK regrets operating its former plant in Cidra in a manner that did not meet Food and Drug Administration manufacturing standards, said Elpido "PD" Villarreal, GSK's senior vice president and head of global litigation, in a statement.

"GSK worked hard to resolve fully the manufacturing issues at the Cidra facility before its closure in 2009 and we are committed to continuous improvement in our manufacturing processes."

The investigation did not find any evidence that the faulty drugs harmed consumers, said Christina Sterling, spokeswoman for the U.S. Attorney's Office for the District of Massachusetts.

The investigation also involved the FDA, the FBI and the Office of Inspector General, among others.

GSK sent Eckard to the Cidra factory in August 2002 to lead a team of scientists and quality experts to fix manufacturing violations cited by the FDA, according to her attorneys. Eckard discovered manufacturing problems not identified by the FDA, including mixed-up products, diabetes drugs with too much or too little of the clinically effective ingredient, a nonsterile area of the facility that was used to make injectable drugs and a water system contaminated with microorganisms.

Eckard urged GSK managers to fix the problems at the Cidra facility, including shutting down the plant, according to Getnick & Getnick. GSK fired Eckard in May 2003.

The FDA seized $2 billion worth of drugs from the Cidra facility in October 2003 and February 2005, according to Eckard's attorneys.

While GSK admits to manufacturing and selling faulty drugs, the drug firm disputes Eckard's civil claims, said GSK spokeswoman Mary Anne Rhyne.

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$750 million penalty payment

An agreement among GlaxoSmithKline, the Justice Dept. and three state attorneys general over the drugmaker's selling poorly manufactured drugs to Medicare and Medicaid:

  • Involves four drugs manufactured at a now-closed plant in Cidra, Puerto Rico, between 2001 and 2005: Kytril, Bactroban, Paxil CR and Avandamet. The drugs were found to be contaminated by microorganisms, were split in half, or did not have appropriate amount of clinically effective ingredients, among other defects.
  • Requires GSK to pay $600 million in civil penalties, including $436.4 million to the federal government and up to $163.6 million to states. Of the federal share, $96 million will go to a former GSK employee who filed a False Claims Act whistle-blower case against the drug firm.
  • Requires GSK to pay $150 million in criminal penalties.

Source: U.S. Attorney's Office for the District of Massachusetts, October

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