Glaxo agrees to pay $3 billion over Medicaid pricing

In perhaps the largest penalty ever paid by a pharmaceutical company, GlaxoSmithKline said Thursday it had reached a tentative deal with the U.S. Justice Department to pay $3 billion to settle criminal and civil allegations of illegal marketing practices and pricing under a Medicaid program.

Glaxo said the deal would be made final in 2012, but it was unclear why it was announced now. A spokeswoman declined to say whether Glaxo would have to live by a corporate integrity agreement, which the government sometimes requires in such cases.

A Justice Department spokesman declined comment.

Assuming the deal is completed, the $3 billion price tag would cover three investigations. Whether it is the largest depends on how one calculates fines and the misdeeds that prompted them.

In 2009, Pfizer agreed to pay $2.3 billion to settle criminal and civil allegations from a combination of investigations into whether it illegally marketed drugs including Bextra, Zyvox, Geodon, and Lyrica.

In a case prosecuted by the U.S. Attorney's Office in Philadelphia, Eli Lilly & Co. agreed to pay $1.4 billion and plead guilty to charges that it illegally marketed the antipsychotic drug Zyprexa in elderly populations as treatment for dementia, including Alzheimer's dementia.

As for Glaxo's latest situation, one investigation, started by the U.S. Attorney's Office in Colorado and later run on a national level by the U.S. Attorney's Office in Boston, looked at Glaxo's marketing practices related to nine of its best-selling drugs, including Paxil, Wellbutrin, and later Advair.

In a second investigation, the Justice Department looked at Glaxo's possibly inappropriate use of rules exceptions when reporting prices charged for drugs for different situations in the marketplace. Under part of the Medicaid Rebate Program, drugmakers are supposed to report the lowest price they charge most organizations, which is then used to calculate the price that Medicaid ultimately pays for its drugs.

The third investigation, also by the Justice Department, was over how Glaxo promoted the diabetes drug Avandia, which was pulled from European markets and severely restricted last fall by the Food and Drug Administration after it was shown to cause heart attacks.

Glaxo is based in London but has about 1,300 Center City employees.

The company set aside $3.5 billion for legal bills earlier in the year, so the fines will be paid from cash on the books.

The company said in a statement that since 2008 it had "established a new framework for compliance in the U.S., based on the company's values, policies and established industry codes of practices. It is supported by a larger compliance staff and strengthened training programs that require certification by employees."

The changes included new incentive formulas for sales representatives, eliminating sales targets for bonuses.

"This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today," Glaxo chief executive officer Andrew Witty said in the statement. "In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the U.S. to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently."

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