GlaxoSmithKline to pay $70 mln to end drug suits
Friday, August 11, 2006, 11:54
GlaxoSmithKline Plc, Europe's biggest drugmaker, agreed to pay about $70 million to settle claims by state attorneys general and consumers that the company overcharged government health programs for its medicines. The settlement covers claims by New York, California, Nevada, Connecticut, Montana and Arizona, as well as potential claims in 34 other states and the District of Columbia, the Brentford, England-based company said in a statement. The agreement also resolves a lawsuit filed in Boston by health care programs, individuals and insurers, the company said. The case stems from the government practice of using so-called average wholesale prices, as reported by Glaxo and other drugmakers, to set reimbursement rates for medicines used by health programs such as Medicare. The states claimed the companies used the formula to artificially inflate drug prices, costing their programs hundreds of millions of dollars. „AWP laws are very complicated, and it's easy to run afoul of them,” said Les Funtleyder, a health-care analyst with Miller Tabak & Co. in New York. „If the attorney general could show it was deliberate, I think the fines would be higher.” The payment „is non-material” for Glaxo, he said. Glaxo, which earned $2.42 billion in the Q2, has already set aside money to cover the settlement, it said in a statement. The company, which admitted no wrongdoing, said it settled the case to „put this historical matter behind” it. The announcement was made after markets closed in Europe. Shares of Glaxo rose 9 pence to 1,446 yesterday in London. They are little changed this year. Glaxo's American Depositary Receipts rose 56 cents, or 1%, to $55.10 in New York Stock Exchange composite trading. „It's all over AWP pricing,” said company spokeswoman Mary Anne Rhyne. „It's our contention government programs chose to use AWP as a reimbursement benchmark, although it had been widely known AWP exceeded the price actually paid by doctors, pharmacies and others.” Medicare, the federal health program for the elderly and disabled, has moved away from AWP-linked payments for drugs administered in doctors offices, such Glaxo's Kytril and Zofran, used to ease the side effects associated with cancer treatments. The program this year expanded coverage with a new drug benefit, which pays for medicines people take on their own. Eliot Spitzer, attorney general for New York, filed suit in February 2003 against Glaxo and rivals Pharmacia Corp. and Aventis SA accusing them of giving a discount to doctors. The physicians then claimed reimbursements at higher prices from government programs such as Medicare and Medicaid, and pocketed the difference, Spitzer claimed. Pfizer Inc. acquired Pharmacia later that year. „Our lawsuit helped stop a longstanding practice that inflated the cost of drugs for people suffering from cancer and cheated the Medicaid system” Spitzer said yesterday in a statement. This settlement provides significant restitution for consumers and the Medicaid program. New York's Medicaid program will get $1.5 million from the settlement as restitution for inflated prices for Kytril and Zofran, and an antibiotic, Amoxil. Glaxo's settlement leaves Johnson & Johnson, Bristol-Myers Squibb Co., Pfizer Inc., and other pharmaceutical companies facing a trial over the class-action lawsuit.
Consumers who say they were harmed by the AWP pricing formula in more than 300 drugs filed the suit in 2001, alleging an industry-wide scheme to defraud the US health care system by charging inflated prices for medications. The case goes to trial in November. Carla Burigatto, a spokeswoman for AstraZeneca, declined to comment, as did spokesmen for Johnson & Johnson, Bristol-Myers, Amgen Inc. and Pfizer. The Prescription Access Litigation Project, an organization representing many of the plaintiffs, estimated that Medicare and individual consumers using the drugs were overcharged more than $800 million in 2000 because of the pricing formula. This settlement represents a nail in the coffin of AWP and a move toward a more transparent system that will prevent drug companies from charging inflated prices, said Renée Markus Hodin, associate director of PAL. There are 19 groups of pharmaceutical companies named as defendants in the suit, including Glaxo. The case focuses on Medicare beneficiaries and so-called third parties such as insurers who paid for certain drugs that treat serious conditions such as cancer, asthma, rheumatoid arthritis and emphysema. Steve Berman, managing partner at Hagens Berman Sobol Shapiro in Seattle, is lead attorney for the plaintiffs. (Bloomberg)