GSK's Historic Fraud Settlement Fraught With Compliance Directives

Pharmaceutical giant GlaxoSmithKline reached a record $3 billion False Claims Act settlement with the U.S. Justice Department this month—the largest healthcare fraud payout in U.S. history. But it's not just the settlement amount that has drug companies shuddering.

The settlement agreement also includes a series of rigorous compliance directives that serve as a model for compliance with restrictions on off-label promotion of pharmaceuticals. The corporate integrity agreement details the government's expectations on compliance programs for drug company compliance with the FCA.

“For far too long, we have heard that the pharmaceutical industry views these settlements merely as the cost of doing business,” Stuart Delery, acting assistant attorney general for the Justice Department's civil division, said in a prepared statement. What makes this particular settlement stand out from the pack is that it “seeks not only to punish wrongdoing, but to ensure GSK's future compliance with the law,” said Delery.

In a statement, Deputy Attorney General James Cole said the settlement underscores the Justice Department's commitment to hold accountable those who commit healthcare fraud. “This historic action is a clear warning to any company that chooses to break the law,” he said.

The case stemmed from a lawsuit filed in January 2003 by two whistleblowers, former GSK sales representatives Greg Thorpe and Blair Hamrick, who accused the company of off-label, unapproved marketing and promotion of several of its blockbuster drugs, including Paxil and Wellbutrin. The complaint also alleged that GSK failed to report certain safety data.

As part of that settlement, GSK will pay a $1 billion fine, including a $956 million criminal fine and forfeiture of $43 million in profits. The company also will pay $2 billion in civil settlements to state and federal regulators.

The core of the settlement, however, is the unusually stringent 123-page corporate integrity agreement that GSK has entered into with the Department of Health & Human Services Office of Inspector General. This agreement will allow OIG to monitor GSK's compliance program for the next five years.

The purpose of a corporate integrity agreement is “to put enough guardrails in place that, at least going forward, it becomes very difficult to off-label promote,” says Thomas Beimers, special counsel for healthcare fraud matters for law firm Faegre Baker Daniels. This may be the first-ever agreement that puts enough guardrails in place to accomplish that goal, he says.

The corporate integrity agreement could serve as a roadmap for pharmaceutical compliance programs. It includes the following provisions:

Removal of incentive-based compensation for U.S.-based sales representatives. The new system eliminates individual sales targets for sales representatives who work directly with healthcare providers as a basis for bonuses, and instead bases incentive compensation primarily on sales competency, customer evaluations, and the overall performance of the business unit they support. 

Kevin Colgan, a spokesman for GSK, says the company implemented this provision voluntarily in July 2010, “which was then incorporated as an element of our corporate integrity agreement.”

“This historic action is a clear warning to any company that chooses to break the law.”

—James Cole,

Deputy Attorney General

“In pharmaceuticals, bonus compensation is significant, particularly the further up the chain you get,” says Erika Kelton, a whistleblower attorney with law firm Phillips & Cohen, who represented two of four whistleblowers in the case.  So structuring a settlement that not only extorts high fines for past conduct, but also pressures individuals to deter future misconduct is a “really promising approach for deterrence,” she says.

Creation of a clawback provision. Referred to as the “executive financial recoupment program,” the provision in the corporate integrity agreement mandates that GSK establish a program that “puts at risk of forfeiture and recoupment an amount equivalent to up to three years of annual performance pay—annual bonus and long-term incentives—for an executive who is discovered to have been involved in any significant misconduct.”

The provision substantially increases individual director and executive liability. If executives feel they're under the microscope and potentially exposed to monetary sanctions, they're going to ensure their direct reports adhere much more closely to the compliance requirements described in the corporate integrity agreement. That means they now have “skin in the game” in a way that they haven't before, says Beimers.

Critics have long argued that record fines are not enough to deter drug companies from unlawful conduct. “There is so much financial incentive for the companies to continue the conduct that the only way to adequately deter it is to create terms for specific individuals,” says Brian Kenney, an attorney with law firm Kenney & McCafferty, who represented whistleblowers Thorpe and Hamrick in the case. “That's really the goal,” he says, “to hold people more personally liable.”

Kelton says that targeting individuals in a corporate integrity agreement is especially important in “situations where you do not have individuals who have been found to be criminally liable.” It may be that such provisions will become “more typical in settlement agreements across the board,” she says. 

CRIMINAL PLEA AGREEMENT

Below is the Justice Department's announcement regarding the details of GlaxoSmithKline's criminal plea agreement:

Under the provisions of the Food, Drug and Cosmetic Act, a company in its application to the FDA must specify each intended use of a drug. After the FDA approves the product as safe and effective for a specified use, a company's promotional activities must be limited to the intended uses that FDA approved. In fact, promotion by the manufacturer for other uses—known as “off-label uses”—renders the product “misbranded.”

Paxil: In the criminal information, the government alleges that, from April 1998 to August 2003, GSK unlawfully promoted Paxil for treating depression in patients under age 18, even though the FDA has never approved it for pediatric use. The United States alleges that, among other things, GSK participated in preparing, publishing and distributing a misleading medical journal article that misreported that a clinical trial of Paxil demonstrated efficacy in the treatment of depression in patients under age 18, when the study failed to demonstrate efficacy. At the same time, the United States alleges, GSK did not make available data from two other studies in which Paxil also failed to demonstrate efficacy in treating depression in patients under 18. The United States further alleges that GSK sponsored dinner programs, lunch programs, spa programs and similar activities to promote the use of Paxil in children and adolescents. GSK paid a speaker to talk to an audience of doctors and paid for the meal or spa treatment for the doctors who attended. Since 2004, Paxil, like other antidepressants, included on its label a “black box warning” stating that antidepressants may increase the risk of suicidal thinking and behavior in short-term studies in patients under age 18. GSK agreed to plead guilty to misbranding Paxil in that its labeling was false and misleading regarding the use of Paxil for patients under 18.

Wellbutrin: The United States also alleges that, from January 1999 to December 2003, GSK promoted Wellbutrin, approved at that time only for Major Depressive Disorder, for weight loss, the treatment of sexual dysfunction, substance addictions and Attention Deficit Hyperactivity Disorder, among other off-label uses. The United States contends that GSK paid millions of dollars to doctors to speak at and attend meetings, sometimes at lavish resorts, at which the off-label uses of Wellbutrin were routinely promoted and also used sales representatives, sham advisory boards, and supposedly independent Continuing Medical Education (CME) programs to promote Wllbutrin for these unapproved uses. GSK has agreed to plead guilty to misbranding Wellbutrin in that its labeling did not bear adequate directions for these off-label uses. For the Paxil and Wellbutrin misbranding offenses, GSK has agreed to pay a criminal fine and forfeiture of $757,387,200.

Avandia: The United States alleges that, between 2001 and 2007, GSK failed to include certain safety data about Avandia, a diabetes drug, in reports to the FDA that are meant to allow the FDA to determine if a drug continues to be safe for its approved indications and to spot drug safety trends. The missing information included data regarding certain post-marketing studies, as well as data regarding two studies undertaken in response to European regulators' concerns about the cardiovascular safety of Avandia. Since 2007, the FDA has added two black box warnings to the Avandia label to alert physicians about the potential increased risk of (1) congestive heart failure, and (2) myocardial infarction (heart attack). GSK has agreed to plead guilty to failing to report data to the FDA and has agreed to pay a criminal fine in the amount of $242,612,800 for its unlawful conduct concerning Avandia.

“This case demonstrates our continuing commitment to ensuring that the messages provided by drug manufacturers to physicians and patients are true and accurate and that decisions as to what drugs are prescribed to sick patients are based on best medical judgments, not false and misleading claims or improper financial inducements,” said Carmen Ortiz, U.S. Attorney for the District of Massachusetts.

“Patients rely on their physicians to prescribe the drugs they need,” said John Walsh, U.S. Attorney for Colorado. “The pharmaceutical industries' drive for profits can distort the information provided to physicians concerning drugs. This case will help to ensure that your physician will make prescribing decisions based on good science and not on misinformation, money or favors provided by the pharmaceutical industry.”

Source: Department of Justice.

Notices to healthcare providers and payers. Typically, pharmaceutical companies abiding by a corporate integrity agreement must provide written notification to physicians about the settlement. This agreement goes one step further by requiring GSK to send letters to government and other payers with which the company has rebate agreements, notifying them about the settlement. Colgan adds that GSK also has “significantly strengthened its compliance program and training for employees over the last several years.” The company now has eight deputy compliance officer positions and 79 “integrity champions.”

The role of the integrity champions is “to be involved in the formulation and implementation of policy and to educate their colleagues,” says Colgan. “The intention is that every employee in the sales and marketing staff reviews quarterly any new policy changes, environmental trends, or internal trends.”

Whistleblower Retaliation

The GSK settlement also serves as a stark lesson in what can happen to a company that does not properly handle an employee who reports a complaint. “It's a lesson in how companies should not respond,” says Kelton.

In 2001, Thorpe alerted his district manager and the company's human resources department about allegedly illegal marketing practices regarding several of the company's prescription drugs. Eventually his complaints reached the chief of global compliance, who began an internal investigation.

The investigation ultimately confirmed Thorpe's allegations. “Unfortunately for Glaxo, they basically buried the results of the internal investigation and took a position that it was just a local regional issue,” says Kenney.

In the end, management did nothing to stop misconduct, pressured Thorpe to resign, and fired Hamrick for allegedly not cooperating with the company's investigation. “Glaxo did about everything wrong you could do in terms of responding to a whistleblower,” says Kenney.

Even though Thorpe resigned in 2001, he didn't file a claim until 2003. Had GSK responded appropriately to their employees' concerns, it's possible a False Claims Act complaint never would have been filed, says Kenney.

The case is also a stark reminder that whistleblowers often take their complaints to outside authorities only when they think their concerns are not getting addressed internally. “Our clients, by and large, raise questions and concerns internally first,” agrees Kelton. “They come to us after it's clear to them that nothing will change.”

Greater Enforcement

The GSK agreement eclipses the previous record for a healthcare fraud settlement with the Justice Department. In 2009, Pfizer agreed to pay $2.3 billion to resolve criminal and civil liability arising from the illegal promotion of four of its pharmaceutical drugs. Like GSK, the company also signed an integrity agreement directing it to continue its corporate compliance program for a period of five years.

Other pharmaceutical companies to reach corporate integrity agreements include Abbott Laboratories, Bayer, Cephalon, and Eli Lilly.

The settlement highlights the importance for companies to have “meaningful robust compliance programs,” says Kelton. “The compliance function often does not have a full seat at the table in the way that the business people do.”

In today's enforcement environment, that governance structure won't fly. Federal regulators have “very high expectations for pharmaceutical and device manufacturers,” says Beimers. “They know they have a lot of resources, and they expect them to devote a lot of resources to their compliance programs.”