Global Insight Perspective | |
Significance | The civil settlements relate to the Average Wholesale Price (AWP), a formula used by government and private insurers in the United States to determine drug-reimbursement rates for doctors and pharmacists. |
Implications | Along with numerous other pharmaceutical companies, GSK stands accused of setting AWPs artificially high to curry favour among healthcare professionals—who could then pocket the difference between the AWP and the lower price at which the drugs were actually sold. |
Outlook | GSK's capitulation, which did not include any admission of wrongdoing, looks like a pragmatic acceptance that, against a background drone of allegations about sharp practice in the drug industry, now is not the time to be making a stand—particularly in the contentious realm of pricing. The company says the settlement is covered by existing legal reserves. |
The nationwide settlement of US$70 million reached by GlaxoSmithKline takes in litigation filed by the Attorneys-General of New York, California, Connecticut, Nevada, Montana and Arizona, as well as potential claims from 34 other states and the District of Columbia. It also resolves class-action claims filed against GSK in a consolidated Multidistrict Litigation pending in a federal court in Boston, Massachusetts.
The company is funding some of this from money set aside in a previous settlement with the U.S. Department of Justice in September 2005. In that case, GSK agreed to pay US$150 million—again without admitting any wrongdoing—to settle allegations that it had inflated prices charged to the government’s Medicare and Medicaid programmes for Zofran and Kytril (see United States: 21 September 2005: GSK Settles U.S. Medicare Fraud Case for US$150 mil.). Yesterday’s settlement also relates to Zofran and Kytril, which are usually administered to prevent nausea associated with chemotherapy and radiotherapy. The New York Attorney-General’s Office, which has been a particular scourge of perceived pharma-industry malpractice in recent years, said GSK had also inflated the average wholesale price of its antibiotic Amoxil (amoxicillin).
The settlement gave vent to some fiery rhetoric, with Connecticut Attorney-General Richard Blumenthal accusing GSK of setting “false prices in a brazen scheme to soak taxpayers and patients”. The U.K. company argued, however, that government health plans had chosen to use the AWP as a benchmark even though it was “widely known for years” that AWPs exceeded the prices actually paid by physicans, pharmacies and others. For “public policy reasons”, these health plans had continued to use the AWP as a reference price for a number of years, and “many still do”, GSK added. At the same time, the Medicare programme had shifted away from AWP-based reimbursements in recent years, while other health insurers were still weighing up whether to retain the average wholesale price as a benchmark in their reimbursement systems.
Outlook and Implications
GSK rationalised the settlement by saying the company wanted to “put this historical matter behind it”. One analyst suggested GSK had got off lightly, since it would have faced much higher fines if the Attorneys General had been able to show there was deliberate fraud involved. Nor was the settlement expected to have any material effect on the company’s bottom line. GSK says the sum is covered by existing legal reserves, which stood at more than £1.2 billion (US$2.27 billion) as of 30 June 2006. On the other hand, the company is expected to face higher litigation costs in general during the second half of the year, with legal proceedings under way over drugs such as Wellbutrin (bupropion), Requip (ropinirole), Zofran and Imitrex (sumatriptan) (see United Kingdom: 27 July 2006: GSK Net Profit Rises 14%, Pipeline Excitement Builds Over Bird 'Flu Candidate).
Given that GSK had already made its peace with the U.S. Justice Department over alleged price inflation on Zofran and Kytril (and at a much higher price), the latest settlement is not all that unexpected. The company has also caved in before to the implacable attentions of Eliot Spitzer, Attorney General for New York State and self-styled “People’s Lawyer”. In August 2004, the company paid a relatively lenient US$2.5 million to settle Spitzer’s claims that GSK had withheld negative clinical trial data on its antidepressant, Paxil (paroxetine). Last March Spitzer, acting on behalf of 49 states, reached a US$14-million settlement over GSK’s allegedly unlawful use of patent-infringement suits to keep generic versions of Paxil off the U.S. market.
In this light, the nationwide AWP settlement is more indicative of the low political stock of the pharmaceutical industry—not just in the United States but worldwide—with a seemingly endless stream of revelations about sharp practice in drug marketing, pricing and development. With pharmaceitical prices still a particularly sore nerve in the United States— and more so since the introduction of the Medicare prescription-drug benefit—now was probably not the time to make a stand on pricing practices that were at the very least questionable. With legal action on AWPs still pending against several other pharmaceutical companies, it remains to be seen whether these will follow GSK in putting the matter behind them.