GlaxoSmithKline: $11.1 Million settlement

Pennsylvania Attorney General Pappert Recovers $11.1 Million for PA Medicaid Program in Settlements With Bayer and GlaxoSmithKline Over Allegations of Prescription Drug Pricing Fraud

HARRISBURG, Pa., Jan. 22 /PRNewswire/ — As part of an effort to ensure that pharmaceutical companies follow Medicaid laws on drug pricing, Attorney General Jerry Pappert today announced that his Medicaid Fraud Control Section has secured $11.1 million for the PA Medicaid Program as its share of two national settlements with Bayer Corp. and GlaxoSmithKline (GSK).

Pappert said the settlements resolved allegations that the drug companies concealed from the states deep price discounts given to health maintenance organizations (HMOs) in violation of the federal Medicaid drug rebate statute.

“These settlements with Bayer and GlaxoSmithKline represent the largest national Medicaid fraud settlements in history,” Pappert said. “They also send a message to drug companies that we will closely monitor their activities to ensure that they follow the law and do not manipulate or defraud our Medicaid program.”

Pappert said his office has remitted checks for $4,212,738 and $1,298,273 to the state Department of Public Welfare representing the Commonwealth’s share of the Bayer and GSK settlements, respectively. In addition, Pappert said, the federal government has been remitted $4,275,023 and $1,327,761 for its share of the Pennsylvania settlement with Bayer and GSK, respectively. Pappert explained that the state Medicaid programs are jointly funded by the state and federal governments. Nationally, Bayer settled its case with the Medicaid programs for more than $272 million and GSK settled its case for $87.6 million.

“The funds from these settlements will be returned to the Medicaid programs, which the states will use to provide health care services to the most needy and vulnerable citizens,” Pappert said. “We will not allow companies or individuals to manipulate the Medicaid programs and defraud taxpayers.”

Pappert explained that the alleged conduct violated the federal Medicaid drug rebate statute, which requires drug manufacturers to report accurate “best price” information to the government. Officials use the information to calculate the rebates drug manufacturers pay to the states to ensure the state Medicaid programs purchase the drug at the manufacturers’ lowest price for the product. Pappert said the “best price” is the lowest price that a manufacturer offers its products for sale to commercial purchasers.

Pappert said both Bayer and GSK sold products to HMOs at deeply discounted prices, and then allegedly concealed and avoided their obligation to pay additional rebates to the Medicaid programs. This was accomplished by re- labeling or re-packaging these drugs under the HMO’s private label.

GlaxoSmithKline

Pappert said the U.S. Attorney’s Office for the District of Massachusetts conducted an investigation into alleged improprieties relating to the reported “best price” for Flonase, a nasal spray, and Paxil, an anti-depressant. Flonase was manufactured and sold by Glaxo Wellcome and Paxil was manufactured and sold by SmithKline Beecham. These two companies merged and became GSK in December 2001.

Through a private labeling agreement with Kaiser Permanente, an HMO in California, Glaxo Wellcome manufactured, packaged and shipped Flonase to Kaiser, but substituted the Kaiser unique identifying number for the Glaxo Wellcome unique identifying number on the label. The purpose of the private labeling arrangement was to provide Kaiser additional price discounts on Flonase without having to report the discounted price as Glaxo Wellcome’s “best price,” thereby avoiding the obligation to pay additional rebates to Medicaid under the Medicaid drug rebate program.

Pappert said that SmithKline also entered into a private labeling agreement with Kaiser for Paxil. Paxil was manufactured, packaged and shipped by SmithKline to Kaiser, but SmithKline substituted Kaiser’s unique identifying number for SmithKline’s unique identifying number on the label. SmithKline provided Kaiser additional price discounts on Paxil without reporting the newly discounted price to the Medicaid rebate program, thereby avoiding payment of additional rebates.

In addition to the civil settlement, Pappert said, amounting to $87,600,922 in damages and penalties to the federal government and the states, GSK has entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General.

At the insistence of the National Association of Medicaid Fraud Control Units, Pappert said, GSK will be required to certify its “best price” methodology. This will add a new responsibility for the manufacturer and will enhance future state enforcement.

Bayer

Pappert said a complaint was filed in federal district court in Boston in February 2000, whereupon the U.S. Attorney’s Office conducted an investigation into alleged improprieties relating to the reported “best price” for two of Bayer’s drugs, Cipro, an antibiotic, and Adalat CC, an anti-hypertensive.

Bayer agreed to private label Cipro and Adalat CC for Kaiser and to sell these drugs to Kaiser at a discounted price. Bayer has agreed to pay $242,126,570 in damages and penalties to the federal and state governments for knowingly misreporting its “best price” to CMS and underpaying its Medicaid rebates for Cipro and Adalat CC. Bayer pleaded guilty to a charge of violating the Prescription Drug Marketing Act in federal district court in Boston.

Bayer paid a fine of $5.6 million to the federal government.

An addendum with new obligations will be added to Bayer’s current Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General. At the insistence of the National Association of Medicaid Fraud Control Units, the Corporate Integrity Agreement will require Bayer to certify its “best price” methodology. This new responsibility will enhance future state enforcement.

Pappert noted that the U.S. Attorney’s Office in Massachusetts conducted the investigations resulting in the GSK and Bayer settlements, as well as the prosecution of Bayer. Pappert said that the office requested the assistance of National Association of Medicaid Fraud Control Units to negotiate on behalf of the state Medicaid programs.

Pappert said that the state negotiating team for both cases was led by prosecutors of the Pennsylvania, Maryland and Washington State Medicaid Fraud Control Units. He noted that Chief Deputy Attorney General Christopher Abruzzo of his Medicaid Fraud Control Unit helped negotiate the settlements.