GlaxoSmithKline settles healthcare fraud case for $3 billion

By David Ingram - Reuters

WASHINGTON (Reuters) – GlaxoSmithKline Plc agreed to plead guilty to misdemeanor criminal charges and pay $3 billion to settle what government officials on Monday described as the largest case of healthcare fraud in U.S. history.

The agreement, which still needs court approval, would resolve allegations that the British drugmaker broke U.S. laws in the marketing and development of pharmaceuticals.

GSK targeted the antidepressant Paxil to patients under age 18 when it was approved for adults only, and it pushed the drug Wellbutrin for uses it was not approved for, including weight loss and treatment of sexual dysfunction (one of its side effects is sexual dysfunction), according to an investigation led by the U.S. Justice Department.

The company went to extreme lengths to promote the drugs, such as distributing a misleading medical journal article and providing doctors with meals and spa treatments that amounted to illegal kickbacks, prosecutors said.

In a third instance, GSK failed to give the U.S. Food and Drug Administration safety data about its diabetes drug Avandia, in violation of U.S. law, prosecutors said.

The misconduct continued for years beginning in the late 1990s and continued, in the case of Avandia’s safety data, through 2007. GSK agreed to plead guilty to three misdemeanor criminal counts, one each related to the three drugs.

Guilty pleas in cases of alleged corporate misconduct are exceedingly rare, making GSK’s agreement especially unusual.

The agreement to settle the charges “is unprecedented in both size and scope,” said James Cole, the No. 2 official at the U.S. Justice Department. He called the action “historic” and “a clear warning to any company that chooses to break the law.”

The settlement includes $1 billion in criminal fines and $2 billion in civil fines.

GSK said in a statement it would pay the fines through existing cash resources. The company announced a $3 billion charge in November related to legal claims [ID:nL5E7M315A].

NEW ‘ERA’ AT GSK

Chief Executive Officer Andrew Witty said the misconduct originated “in a different era for the company” and will not be tolerated. “I want to express our regret and reiterate that we have learnt from the mistakes that were made,” he said in a written statement.

The GSK settlement surpasses what had been the largest criminal case involving a drugmaker in U.S. history. In 2009, Pfizer Inc agreed to pay $2.3 billion to settle allegations it improperly marketed 13 drugs.

The cases follow a trend of U.S. authorities cracking down on how pharmaceuticals are sold, in part because of the rising cost of providing drugs through government programs.

Part of civil fines address allegations that, from 1994 to 2003, GSK underpaid money owed to Medicaid, the healthcare program for the poor run jointly by states and the federal government. The company had an obligation to tell the government its “best prices” but failed to do so, prosecutors said, and $300 million of the settlement will go to states and other public health authorities.

A portion of the $2 billion in civil fines may go to a group of whistleblowers who contributed to the government’s investigation and who are eligible to share in the recovery under the False Claims Act. Cole said the amount has not been determined.

‘INTEGRITY’ PLAN

As part of the settlement, GlaxoSmithKline agreed to new restrictions by the U.S. government to prevent the use of kickbacks or other prohibited practices. The inspector general of the U.S. Department of Health and Human Services will oversee the “Corporate Integrity Agreement” for five years.

The company will not be able to compensate its salesmen based on sales goals for territories. It was also required to change its executive compensation program to allow the company to “claw back” certain pay for those engaged in misconduct.

Witty said GSK’s U.S. unit has “fundamentally changed our procedures for compliance, marketing and selling. When necessary, we have removed employees who have engaged in misconduct.”

Prosecutors have not brought criminal charges against any individuals in connection with the GSK case, although the settlement expressly leaves open that possibility. Cole declined to comment on the possibility of future charges.

Almost exactly a year ago GSK agreed to pay nearly $41 million to 37 states and the District of Columbia in an unrelated case about substandard manufacturing processes at a Puerto Rico factory.

In 2010, the company took a $2.4 billion charge in connection with Avandia to settle claims from patients.

GSK’s shares were positive on the New York Stock Exchange on Monday, up 1.6 percent to $46.29 at 1400 EDT.

The case is U.S. v. GlaxoSmithKline LLC, U.S. District Court for the District of Massachusetts, No. 12-cr-10206.

Too Big to Jail

Brandon Garrett and Corporate Crime

by RUSSELL MOKHIBER

 

Brandon Garrett has pulled together a database of all the deferred and non prosecution agreements and plea agreements since 2001. And he’s sliced and diced them.

And now he’s writing a book for Harvard University Press about what he’s finding.

The working title?

Too Big to Jail: How Prosecutors Take On Corporations.

Garrett is a Professor at the University of Virginia Law School.

Garrett wonders, for example, why the Justice Department secures guilty pleas for environmental crimes while getting primarily deferred and non prosecution agreements in Foreign Corrupt Practices Act (FCPA) cases.

“There is nothing inherent in environmental crimes that requires guilty pleas and FCPA that requires deferred prosecution agreements, right?”

“No, if anything they are kind of similar,” Garrett said in an interview last week.

“For environmental cases – are customers going to stop buying the products of a company that makes plastics or steel because their factory was out of compliance with the Clean Water Act or the Clean Air Act? Customers may not know.”

“It may not hurt the company’s reputation so that it will be the death knell.”

“And we know that there have been companies convicted multiple times, seemingly without significant effect.”

“But the same might be true of foreign bribery. When Siemens was convicted for bribery around the globe, did that affect whether someone bought a Siemens coffee maker or not? Probably not. It might cause a government to have doubts when walking into negotiations for a major contract.”

“The difference in the way FCPA and environmental cases are handled just has to do with different divisions at Main Justice that are handling those cases and how they have developed their own practices over the years.”

And Garrett is troubled by the wording and details of the deferred and non prosecution agreements.

“The fines are sometimes not particularly impressive at all,” Garrett says. “There are many agreements with no fines.”

“And if the purpose of these agreements is to not necessarily impose the most severe penalty or fine to a corporation, but to instead trade off of that to insure compliance, to rehabilitate the company – I’m not convinced that rehabilitation is being taken seriously enough either.”

“The bargain reflected in these agreements may not be strong enough. Some of these agreements have pretty detailed terms about what compliance is supposed to look like going forward, but in plenty of them, it is quite vague.”

“Some of these agreements impose monitors, but even there, the duties of the monitors are left somewhat vague.”

“And we have no idea what the monitors are doing – or even who the monitors are in many cases.”

“So, it’s pretty hard to tell from the outside whether these agreements are performing or not.”
Do we get access to monitor reports?

“No one has ever seen monitor reports, except for a prologue that was released in one case, but that was really more of an extended press release,” he says.

“My understanding is that in most of the cases, the company retains the monitor. The agreement typically says that the monitor reports are to remain confidential, that they will be disclosed to prosecutors and maybe regulators, but to no one else.”

“And there may be portions of those reports dealing with employment matters and the like that shouldn’t be public.”

“But the public should know more about what the companies have done and what has happened.”

“When the deferred prosecution agreement is entered, there is a lot of detailed information describing the nature of the alleged crimes – what employers did, what employees did, maybe without naming them – describing the pattern of criminal behavior, what was the breakdown in corporate governance that permitted it to happen.”

“And then identifying, sometimes specifically, what needed to be done to repair the company.”
“And you would think that there could be a similar report at the end of the agreement – maybe not every monitor’s quarterly report – but some detailed accounting of – this is where things stand now – two or three years after the agreement was entered into.”

Garrett says corporate crime cases differ from street crime cases in fundamental ways.

“One of the many ways corporations are not like regular criminal defendants is that in regular criminal cases, prosecutors and police have access to some of the best information about what really happened,” Garrett said.“In violent crimes that I have been looking at, you worry about Brady violations, you wonder whether prosecutors and police are doing a good investigation and getting accurate evidence.”

“But it all gets flipped around in these corporate cases, where the corporation may have the best information about what really happened. They all have access to e-mails and documents, to any interviews their own lawyers did investigating it.”

“And the cases can be incredibly complicated with millions and millions of documents. They are incredibly difficult cases for prosecutors to bring. If you have conduct that occurred around the globe, can the FBI really take on the job of sorting through it all or trying to get a hold of millions of documents distributed around the globe?”

“Both the corporations and the executives can afford brilliant top lawyers.”

“In regular criminal cases, it is the defendant that may find out later – what evidence did the police gather? When the police are investigating the crime scene, there might not even be a defendant who has a lawyer. There might be a suspect later.”

“It is all reversed in corporate cases. In some ways, you have to applaud prosecutors for taking more of these on. And you can understand why they need to negotiate these agreements. Without the cooperation of the companies, they might not easily get access to those documents and records to find out what happened.”

“It’s not a surprise that in the hardest cases to bring, in these antitrust cases where there is a cartel, they need special tools like the leniency program to crack that nut and encourage defection, encourage corporation-on-corporation snitching.”

“What you see is that prosecutors are able to bring more and more of these cases in areas where they can leverage their admittedly sometimes thin resources to produce more self-reporting and cooperation.”

“How are they supposed to find out about ocean dumping at sea? The statute has whistleblower provisions to encourage shipmates to come forward, take pictures on their cell phones and get a share of the fine.”

“And prosecutors offer companies similar rewards. They can say – we can offer you significant leniency if you come forward, self-report and cooperate – give us the documents and help us prosecute individual employees that committed wrongs.”

“If we really are going to take these difficult cases more seriously, it’s going to be a question of resources.”

“You would think those resources should flow to the prosecutors working on these cases, since they are, after all, bringing in significant fines and money.”

“I would like to learn more about the degree to which some of that can be sent back to the people doing these cases – so they have the resources to get more agents working on future cases.”