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GlaxoSmithKline Settles Illegal Pricing Scheme

August 11, 2006
A settlement has been reached with GlaxoSmithKline (GSK) to resolve allegations that the company inflated the price of drugs, including medications for cancer patients.

Under the settlement, which was reached in conjunction with a settlement by the U.S. Department of Justice and the National Association of Medicaid Fraud Control Units, GlaxoSmithKline (GSK) will provide over $1 million in restitution to New York's Medicaid program, which represents New York's share of an agreement involving over 40 states for two drugs used in connection with cancer treatment, according to New York Attorney General Eliot Spitzer.

Additionally, GSK will pay $940,000 to Medicaid for claims relating to payments for an antibiotic.

GSK, under a separate settlement of a private class action suit in federal court in Boston, will also establish a national restitution fund of approximately $40 million to which Medicare consumers in New York and across the nation and the New York Elderly Pharmaceutical Insurance Coverage (EPIC) program may make claims.

"Our lawsuit helped stop a longstanding practice that inflated the cost of drugs for people suffering from cancer and cheated the Medicaid system" Spitzer said. "Today's settlement provides significant restitution for consumers and the Medicaid program."

Spitzer sued GSK and two other pharmaceutical manufacturers in 2003 on charges of having made false statements that inflated the average wholesale price (AWP) of a class of drugs known as anti-emetics, which help people deal with the side effects of chemotherapy, and other drugs.

The practice had two main consequences: First, it caused government health plans and consumers nationwide to overpay for certain drugs. Government health plans overpaid because they reimbursed pharmacies and doctors at the inflated price; Medicare beneficiaries overpaid because they paid, as coinsurance, a percentage of the inflated amount.

Second, an inflated AWP allowed the companies to market the drugs to doctors, pharmacists and other health care providers with the promise that they could keep the "spread" between the actual price of the drug and its inflated reimbursement rate, thereby providing a financial incentive for doctors to choose the companies' drugs over competitors' products.

The settlements have the following components:

• GSK will pay the New York Medicaid program a total of $1.53 million in restitution for inflating the prices of three specific drugs -- Kytril and Zofran, injectable anti-nausea drugs used in connection with chemotherapy, and Amoxil, the antibiotic. Under federal law, the federal Medicaid program will receive an additional $470,000 from New York's settlement of GSK's inflated pricing of Amoxil;

• GSK will establish a nationwide fund of approximately $27 million to which EPIC, New York's program that provides drug coverage for seniors with Medicare, may present its claims;

• GSK will establish a nationwide fund of approximately $13.5 million to which Medicare beneficiaries in New York State who paid inflated coinsurance amounts for certain drugs may make claims; and

• GSK will pay New York $740,000 to cover the costs of the state's investigation.

In addition, GSK will report to the New York Medicaid program two federally defined prices, one of which is used to set current Medicare Part B reimbursement.

The cases filed against two other drug manufacturers, Aventis and Pharmacia, are pending, as are numerous other similar suits filed by counties, states and private plaintiffs.

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