On July 2, 2012, the Department of Justice announced the largest health care fraud settlement in U.S. history: GlaxoSmithKline LLC (“GSK”) will pay $3 billion to resolve criminal and civil allegations of unlawfully promoting prescription drugs, failing to report safety data and engaging in allegedly false price reporting practices. This resolution includes a criminal fine and forfeiture totaling $1 billion and $2 billion in civil payments.

Historically Severe Criminal and Civil Fines

Under the Food, Drug, and Cosmetic Act (“FDCA”), GSK may promote its prescription drugs only for approved uses, not for any “off-label” uses, and must submit certain safety data on drugs to the Food and Drug Administration (“FDA”). In its plea agreement, GSK admitted to (1) promoting the anti-depressant drug Paxil with false and misleading statements regarding the use of the drug for children, (2) promoting the anti-depressant drug Wellbutrin for weight loss, the treatment of sexual dysfunction and other uses for which it was not FDA-approved, and (3) failing to provide clinical data regarding the cardiovascular safety of the diabetes drug Avandia to the FDA in its required periodic reports.

GSK entered into a global settlement with criminal, civil and administrative components to resolve the pending investigations.

• Criminal Plea: GSK pled guilty to three misdemeanor violations of the FDCA, including two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about Avandia to the FDA. Under the plea agreement, GSK will pay a criminal fine of $956.8 million and forfeit assets of $43.2 million. The plea agreement includes non-monetary compliance commitments and requires GSK’s board of directors and its U.S. president to annually certify compliance with those commitments.
  
  
• Civil Settlement: GSK also agreed to pay $2 billion ($1.5 billion to the federal government, $477.8 million to the states, and $20.2 million to certain public health entities) to resolve its civil liability for (1) promoting Paxil, Wellbutrin, Advair, Lamictal and Zofran for off-label uses and paying kickbacks to physicians to prescribe Advair, Flovent, Imitrex, Lotronex, Paxil, Wellbutrin and Valtrex, (2) making false and misleading statements concerning the safety of Avandia, and (3) reporting false drug prices and underpaying rebates owed under the Medicaid Drug Rebate Program. The off-label civil settlement also resolved four lawsuits pending in the District of Massachusetts under the qui tam provisions of the False Claims Act.
  
  
• Administrative: GSK entered into a 5-year Corporate Integrity Agreement (“CIA”) with the Office of the Inspector General of the Department of Health and Human Services.

GSK Must Change Its Business Practices to Comply With the Plea Agreement and CIA

In lieu of probation, GSK agreed to numerous compliance measures contained in an addendum to the plea agreement and the 122-page CIA. GSK’s agreements include unique requirements not previously found in CIAs entered by pharmaceutical companies settling similar allegations. Designed to increase accountability and transparency and prevent future fraud and abuse, these requirements manifest government activism in changing how drug companies do business and include:

• Expansion of compliance function.  GSK must identify management personnel within each business unit to serve as “Integrity Champions” who are to be responsible for facilitating local implementation and adherence to the federal health care program and FDA requirements, implementing policies and the CIA;
  
  
• Documentation of off-label information solicitations.  GSK sales personnel must obtain signed confirmation from medical professionals who request written information about off-label use that such information was requested and that the request was unsolicited;
  
  
• Shift away from volume-based compensation.  GSK must change its compensation policy to pay sales professionals and managers based on business acumen, customer engagement or knowledge of GSK products and prohibit compensation based on sales goals;
  
  
• Executives subject to bonus and incentive recoupment.  GSK’s executive compensation program must be modified to permit the company to recoup up to three years of annual performance pay from current or former executives who engage in significant misconduct; and
  
  
• Research transparency.  GSK must disclose final clinical study protocols for human research studies and publish a summary of all GSK-sponsored research studies within a specified number of months from their completion (including information about discontinued studies). 

The GSK settlement continues the government’s recent trend of extracting increasingly substantial civil and criminal penalties from drug and device companies accused of off-label promotion, payment of kickbacks, price inflation and other violations. With the mounting political pressure for executives to be held accountable for corporate misconduct, it is likely that provisions like those found in the GSK agreement will be replicated in future settlements and may well find their way into model compliance guidance for these industries. Moreover, the government makes it quite costly if the corporation is unwilling or unable to change—for example, in this case, GSK may be liable for stipulated penalties in the CIA (ranging from $1,000 to $10,000 per day) and in the plea agreement ($20,000 per day) for failing to comply with certain obligations. Pharmaceutical and medical device companies should evaluate whether to voluntarily adopt these or similar practices now in order to reduce the likelihood of future liability, government wrath at perceived non-compliance, and imposition of government-chosen, and potentially ill-timed business protocols.

© 2012 Perkins Coie LLP