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Glaxo Case Pushes U.S. Health Settlements to $6.6 Billion

GlaxoSmithKline Plc (GSK), Johnson & Johnson (JNJ) and other drugmakers have paid $6.6 billion this year to settle claims of defrauding U.S. health programs, more than double the amount of 2011, advocacy group Public Citizen said.

Fines and penalties rose from $2.5 billion in 2011, aided by a record $3 billion settlement by Glaxo in July, Washington- based Public Citizen said in a report today. Common frauds include overcharging government programs such as Medicare and pushing doctors to prescribe drugs for unapproved uses.

Health-fraud settlements have risen since President Barack Obama took office, with federal and state governments resolving 143 cases since the start of 2009, about 50 percent more than the previous 18 years, according to data in the report. Despite the increased pursuit, the penalties represent a fraction of drug companies’ profits and need to be raised, said Sammy Almashat, a researcher at Public Citizen who wrote the report.

“Investors have come to expect” companies to build potential fines into their businesses, Almashat said in a telephone interview. “The consensus seems to be that this is a business model, and unless the federal government moves first to increase these penalties, that’s likely to remain the case.”

Glaxo agreed in July to pay $3 billion to settle claims that it marketed the depression medicines Paxil and Wellbutrin for uses not approved by the U.S. Food and Drug Administration. Photo: Tannen Maury/Bloomberg Close

Glaxo agreed in July to pay $3 billion to settle claims that it marketed the depression... Read More

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Glaxo agreed in July to pay $3 billion to settle claims that it marketed the depression medicines Paxil and Wellbutrin for uses not approved by the U.S. Food and Drug Administration. Photo: Tannen Maury/Bloomberg

Glaxo, the U.K.’s largest drugmaker, has paid more than $7.5 billion in 20 settlements since 1991, about a quarter of $30 billion of penalties against the industry in that time, Public Citizen said. Glaxo agreed in July to pay $3 billion to settle claims that it marketed the depression medicines Paxil and Wellbutrin for uses not approved by the U.S. Food and Drug Administration and that it failed to report clinical data on the diabetes drug Avandia.

Glaxo Response

“The settlements Glaxo has entered into with the U.S. government and various states originated in a different era for the company,” a U.S. spokeswoman for London-based Glaxo, Kevin Colgan, said in an e-mail. “We have taken action at all levels in the company to ingrain a culture that aligns with our values and puts patients first, acts transparently, respects people inside and outside the organization and displays integrity in everything we do. We have also fundamentally improved our procedures for compliance, marketing and selling.”

Colgan also said the $7.5 billion figure from Public Citizen includes a $3.4 billion tax dispute settlement not related to Medicaid or Medicare that shouldn’t have been factored into the report’s totals.

Glaxo reported about $8.4 billion (5.2 billion pounds) in net income for 2011, according to data compiled by Bloomberg. Pfizer Inc. (PFE), the world’s largest drugmaker, has paid about $3 billion in 15 settlements since 1991, while Johnson & Johnson has handed over $2.3 billion in 14 cases, Public Citizen said.

Business Practices

“This report looks backwards and ignores the significant steps Pfizer has taken to strengthen our internal controls and pioneer new procedures in the area of compliance,” Chris Loder, a spokesman for New York-based Pfizer, said in an e-mail. “Corporate integrity is an absolute priority.”

He said the company has “invested substantial resources” in compliance, training and monitoring efforts, and strictly follows all federal and state health care laws. Loder cited data in the report showing that since 2010, Pfizer has paid $20 million in settlements.

A Johnson & Johnson spokesman, Bill Price, said in an e- mail that the New Brunswick, New Jersey-based company “remains committed to ethical business practices, the care of patients, and strong compliance programs that ensure our products are promoted only for their approved indications.”

“We continue to work with the FDA and other entities to ensure greater clarity around the pharmaceutical industry sales and marketing practices that have led to these types of litigation,” Price said.

Whistle-Blowers

Since the beginning of 2009, the federal government has announced 49 settlements totaling $14.5 billion, according to the report. States resolved 94 cases in the same period, for $3.7 billion, Public Citizen said. In the previous 18 years, the federal government settled 55 cases and states 41.

About 75 percent of federal cases since 2010 have been initiated by whistle-blowers, such as company officials and pharmacies, the report shows.

Almashat’s group said the government should prosecute executives of drug companies to discourage fraud, and it backed legislation that Senator Bernie Sanders, a Vermont independent, offered in May to strip patent protections from drugs involved in fraud against the government. Sanders’s amendment was defeated on a vote of 9-88.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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