Glaxo Pays $750 Million Fine for Tainted Products
GlaxoSmithKline, the British drug giant, has agreed to pay $750 million to settle criminal and civil complaints that the company for years knowingly sold contaminated baby ointment and an ineffective antidepressant — the latest in a growing number of whistle-blower lawsuits that drug makers have settled with multimillion dollar fines.
Altogether, GlaxoSmithKline sold 20 drugs with questionable safety that were made at a huge plant in Puerto Rico that for years was rife with contamination. Cheryl Eckard, the company’s quality manager, asserts in her whistle-blower suit that she warned Glaxo of the problems but the company fired her instead of addressing the issues. Among the drugs affected were Avandia, Bactroban, Coreg, Paxil and Tagamet. No patients are known to have been sickened by the quality problems although such cases would be difficult to trace.
Tony West, assistant attorney general for the Justice Department’s Civil Division, and Carmen M. Ortiz, the United States attorney for Massachusetts, announced the settlement in a news conference Tuesday afternoon in Boston. The outcome provides one of the highest whistleblower award yet in a health care fraud case.
GlaxoSmithKline released a statement saying that it regretted operating the Puerto Rican plant in violation of good manufacturing practices. The company said the problem involved only one plant that was closed in 2009. Its American shares were down 0.37 percent in late afternoon trading in New York.
The settlement is part of a growing tsunami of lawsuits that assert that drug makers misled patients and defrauded federal and state governments that, through Medicare and Medicaid, pay for much of health care.
Using claims from industry insiders, federal prosecutors are not only demanding record fines but are hinting at worse. Suffering a research drought, drug makers have laid off thousands of employees. Some of those dispatched have turned to bite the hands that once fed them, filing whistle-blower lawsuits that can start criminal investigations.
Those who win get a cut of the eventual fine. Ms. Eckard will collect $96 million from the federal government, and she will collect additional millions from states.
The suits, all filed under seal, have for years been increasing in size and scope but the collective threat to the industry has been largely unnoticed because the growing mountain is obscured by a wall of judicial secrecy. Each successful claim begets more suits, with more being filed almost every week.
The suits are filed under a federal law originally intended to stop Civil War hucksters from selling rancid meat to the Union Army by paying bounties to tipsters. The pharmaceutical industry has become the law’s most successful target because the government now buys far more pills than bullets, and because fraud in health care is common.
Health care cases accounted for some 80 percent of the $3.1 billion recovered by the Justice Department under the false claims act last year, the Taxpayers Against Fraud Education Fund, a nonprofit whistle-blower advocacy group in Washington, reported on Monday. Most of the money is typically returned to the programs in which false claims were filed, like Medicaid and Medicare.
The Food and Drug Administration and the Inspector General of the Department of Health and Human Services have both announced recently that they would pursue charges against executives personally under a strict liability rule, although that was not done with GlaxoSmithKline. The rule allows executives to be prosecuted and barred from government sales even if they are not aware of specific violations.
“We want to send a message to industry that it’s not just a cost of doing business,” Lew Morris, chief counsel for the inspector general, said in a recent interview.
Legislation could make such claims even easier to win. Last month, the House of Representatives passed a bill permitting executives to be banned even if they have left the company where the fraud occurred and permitting the inspector general to prosecute parent companies for the sins of subsidiaries. Any company that deliberately exaggerates the benefits or underplays the risks of its medicines is a potential target because such exaggerations lead to unnecessary drug uses among Medicare or Medicaid patients, thus creating excessive government payments to drug makers that the suits assert should be returned.
With collective sales forces that once topped more than 100,000, competitive pressures and financial incentives, marketing exaggerations were habitual in the drug industry.
Pfizer alone has settled four whistle-blower cases since 2002 and paid a $2.3 billion fine last year, the largest in history. Whistle-blower cases have become so routine that Wall Street no longer takes much notice of individual suits, while the growing trend remains hidden. When GlaxoSmithKline announced in July that it was setting aside $2.4 billion for legal costs, including enough to pay for the investigation into its Puerto Rico problems, the announcement was greeted with a yawn. The company’s settlement includes $600 million in civil penalties and a $150 million criminal fine.
Still, the GlaxoSmithKline case may lead to a collective industry shiver because it opens a new frontier for whistle-blower suits. Nearly all previous whistleblower cases against the industry involved illegal marketing. This is the first successful case ever to assert that a drug maker knowingly sold contaminated products.
“This case will change the way drug makers run their factories,” Ms. Eckard’s lawyer, Neil Getnick, said.
Among the drugs that GlaxoSmithKline made unsafely at its Puerto Rico plant was Avandia and a related medicine, Avandamet. The F.D.A. decided last month that the drugs should have restricted sales because of their risks to the heart.
Ms. Eckard’s role in the case began in August 2002 when GlaxoSmithKline sent her to Cidra, south of San Juan, to lead a team of 100 quality experts to fix problems cited by an F.D.A. warning letter a month earlier.
The plant was GlaxoSmithKline’s premier manufacturing facility, producing $5.5 billion of product each year. But Ms. Eckard soon discovered that its quality control systems were a mess: its water system was contaminated; its air system allowed for cross contamination between products; its warehouse was so over-crowded that rented vans were used for storage; it could not ensure the sterility of intravenous drugs for cancer; and pills of differing strengths were sometimes mixed in the same bottles.
Although F.D.A. inspectors had spotted some problems, most were missed. And the company abandoned even the limited fixes it promised to conduct, the unsealed lawsuit says. Ms. Eckard complained repeatedly to senior managers; little was done. She recommended recalls of defective products; recalls were not authorized. In May 2003, she was terminated as a “redundancy.” She complained to top company executives; she was ignored even after warning that she would call the F.D.A.. So she called the F.D.A. and sued. The agency began a criminal investigation and used armed federal marshals in 2005 to seize nearly $2 billion worth of products, the largest such seizure in history. Unable to fix the plant, GlaxoSmithKline shuttered it in 2009.
With each settlement, companies announce new checks on misconduct that they promise will prevent future cases while government officials demand reforms like public disclosures of payments to doctors, money that is at the root of many cases. But the failure of these efforts to prevent repeat offenses has led some officials to quietly threaten that they will start charging top executives for the misdeeds of subordinates and may some day impose a corporate “death penalty” — a ban on sales to the government.
Since the government buys about one pill in three, such a ban could severely harm a drug maker and force it to sell its assets. Prosecutors have so far eschewed this remedy because of fears that a ban would disrupt critical drug supplies, and some major drug companies — like big banks — are deemed by officials to be too big to ban. Still, prosecutors have edged closer to this remedy by banning company subsidiaries. In Pfizer’s case, the company created a subsidiary that then got euthanized. Under Tuesday’s settlement, GlaxoSmithKline euthanized its Puerto Rico affiliate.
NY TIMES GARDINER HARRIS and DUFF WILSON
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