GlaxoSmithKline Agrees to Pay $150 million to Settle Fraud Case

GlaxoSmithKline PLC will pay $150 million to settle claims it overcharged the government for two anti-nausea drugs, and prosecutors say they’re looking into 150 cases of drug price fraud.

The Glaxo settlement is the latest in a series of whistleblower claims that have resulted in $2.4 billion in payments from drug companies in recent years.

Scrutiny of the pharmaceutical industry has increased along with the portion of health care costs attributable to prescription drugs. That attention is likely to grow as the government prepares to begin a drug insurance program for older Americans under Medicare that is expected to increase sharply government spending on medicines.

Glaxo engaged in a scheme to inflate the price of Zofran and Kytril for the Medicare and Medicaid programs, which reimburse health care providers based on the manufacturers’ prices, the government said. The drugs, typically administered in doctors’ offices or hospitals, are used mainly to counter nausea brought on by chemotherapy and radiation.

The company charged health care providers less for the drugs, knowing the providers would get to pocket the difference and would be more likely to prescribe them again, the Justice Department said.

Glaxo admitted no wrongdoing as part of the settlement. “We believe that our price reporting was lawful and was done in good faith, but we’ve agreed to this settlement to avoid the delay, expense and uncertainty of litigation,” said Mary Anne Rhyne, a company spokeswoman.

The settlement covers claims submitted from 1994 to 2002.

The case resulted from a whistleblower lawsuit filed by Ven-A-Care of the Florida Keys, Inc., a small home-infusion company that has won several suits that made similar allegations against other drug makers. The company and its principals will receive $26 million from the settlement, as allowed under the federal False Claims Act, the Justice Department said.

The investigation was conducted by the several federal agencies, including the U.S. Attorney’s office in Boston.

“Fraudulent pricing of prescription drugs can cost American taxpayers millions of dollars and undermine the financial integrity of the health care system,” said Massachusetts U.S. Attorney Michael J. Sullivan said in a press release. “To safeguard our nation’s health care programs we will continue to aggressively investigate and prosecute health care fraud violations whether by pharmaceutical companies or individual practitioners.”

James Moorman, president of the advocacy group Taxpayers Against Fraud, said the scheme alleged by Ven-A-Care and the Justice Department represents “a perverse competition, where you don’t compete with a low price but with a high price.”

The Medicare law that created prescription drug coverage beginning in January also was designed to eliminate the huge spread between what manufacturers reported as their average wholesale price and what health care providers actually paid.

Moorman said no similar fix has yet been put in place for Medicaid, the federal-state health program for the poor.

Sen. Charles Grassley, R-Iowa, Congress’ leading advocate for whistleblower protection, said the “importance of whistleblowers will only increase as the new Medicare prescription drug benefit takes effect. Bad actors in the industry should know that these good guys are on the case.”

Glaxo has faced fraudulent billing charges before. In 1997, its forerunner, SmithKline Beecham Clinical Laboratories Inc., was ordered to pay $325 million for filing false claims relating to laboratory tests that were paid for in whole or in part by the federal government. The company added tests not requested by doctors and not medically necessary, billed for tests not actually performed and gave kickbacks to doctors.

Peter Keisler, assistant attorney general in charge of the Justice Department’s Civil Division, said federal and state officials are looking into 150 price and marketing fraud cases involving more than 500 drugs.

The Glaxo settlement is the first announced this year. However, another may be coming soon: Serono Laboratories of Switzerland has set aside $725 million for a settlement of allegations it offered kickbacks to doctors for writing prescriptions for an AIDS treatment drug with sagging sales.

Four former executives have been indicted by a federal grand jury in Boston for their alleged roles in the kickback scheme.

California regulators have sued 41 pharmaceutical companies, accusing them of inflating drug prices for the state’s version of the Medicaid program and costing state taxpayers hundreds of millions of dollars. Glaxo is a defendant in that suit as well.

In one example, the state said Abbott Laboratories Inc. reported the average wholesale price of a vial of the antibiotic vancomycin as $58.37 to Medi-Cal but charged pharmacies just $6.29. The company has denied any improprieties.

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