Life Science Compliance Update

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July 02, 2012

GlaxoSmithKline (GSK) Settlement and Corporate Integrity Agreement

The Department of Justice (DOJ) announced its largest health care fraud settlement in U.S. history: $3 Billion from GlaxoSmithKline (GSK).  Continuing the long trend of settlements with pharmaceutical companies for off-label promotion, DOJ announced that the settlement includes GSK agreeing to plead guilty to a three-count criminal information, including two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about the drug Avandia to the Food and Drug Administration (FDA).  The press release describes the full array of misconduct and various products involved.  

Under the terms of the plea agreement, GSK will pay a total of $1 billion, including a criminal fine of $956,814,400 and forfeiture in the amount of $43,185,600.   The criminal plea agreement also includes certain non-monetary compliance commitments and certifications by GSK’s U.S. president and board of directors. 

GSK will also pay $2 billion to resolve its civil liabilities with the federal government under the False Claims Act, as well as the states.  The civil settlement resolves claims relating to Paxil, Wellbutrin and Avandia, as well as additional drugs, and also resolves pricing fraud allegations. 

As part of this global resolution, GSK has agreed to resolve its civil liability for the following alleged conduct:  (1) promoting the drugs Paxil, Wellbutrin, Advair, Lamictal and Zofran for off-label, non-covered uses and paying kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent and Valtrex; (2) making false and misleading statements concerning the safety of Avandia; and (3) reporting false best prices and underpaying rebates owed under the Medicaid Drug Rebate Program. 

Corporate Integrity Agreement 

Moving forward, GSK will be subject to stringent requirements under its corporate integrity agreement (CIA) with the Department of Health and Human Services (HHS), Office of the Inspector General (OIG); this agreement is designed to increase accountability and transparency and prevent future fraud and abuse. 

The five-year Corporate Integrity Agreement (CIA) includes novel provisions that require that GSK implement and/or maintain major changes to the way it does business, including changing the way its sales force is compensated to remove compensation based on sales goals for territories, one of the driving forces behind much of the conduct at issue in this matter. 

Under the CIA, GSK is required to change its executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct. GSK may recoup monies from executives who are current employees and those who have left the company.  Among other things, the CIA also requires GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various health care payors. 

“Our five-year integrity agreement with GlaxoSmithKline requires individual accountability of its board and executives,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services. “For example, company executives may have to forfeit annual bonuses if they or their subordinates engage in significant misconduct, and sales agents are now being paid based on quality of service rather than sales targets.” 

Specifically, GSK agreed that it will not provide financial reward (through compensation, including incentive compensation or otherwise) or discipline (through tangible employment action) its prescribing-customer-facing field sales professionals (pharmaceutical sales representatives) or their direct managers based upon the volume of sales of GSK products within a given employee’s own territory or the manager’s district. 

GSK’s Patient First program includes evaluations for sales representatives based on business acumen, customer engagement, and scientific knowledge about GSK’s products. GSK must continue its Patient First Program, or a substantially equivalent program, during the term of its CIA. GSK commits to maintaining for at least the duration of the CIA, absent agreement otherwise with the OIG, the restrictions on such tangible employment decisions set forth in its Use of Territory/Individual Sales Data policy. 

In addition, GSK must establish and maintain throughout the term of its CIA a financial recoupment program that puts at risk of forfeiture and recoupment an amount equivalent to up to 3 years of annual performance pay (i.e., annual bonus, plus long term incentives) for an executive who is discovered to have been involved in any significant misconduct (Executive Financial Recoupment Program).  This financial recoupment program applies to both covered executives who are either current GSK employees or who are former GSK employees at the time of a Recoupment Determination. 

Essentially, the annual cash bonus for each GSK employee based in the United States and the United Kingdom is at risk of forfeiture in the event of employee misconduct that is discovered by GSK before the bonus is paid.  In the event of misconduct by any GSK employee worldwide, GSK also has reserved the right and full discretion to void and forfeit any unvested share options and any unvested restricted share grants under the GSK Share Option Plan, Share Value Plan and Performance Share Plan (collectively, the “LTI Plans”).  If GSK discovers any employee misconduct that would implicate the forfeitures described in this paragraph, it shall evaluate the situation and make a determination about whether any forfeiture, and the terms of such forfeiture, must be implemented. 

In addition to the compensation forfeiture provisions already in place with respect to annual bonuses and the LTI Plans, within 120 days after the Effective Date of the CIA, GSK must modify and supplement its annual bonus plan and LTI Plan requirements (and any employment agreements, as appropriate) by imposing certain eligibility and repayment conditions on future bonuses and LTI Plan grants, as well as establishing the mandatory deferred annual bonus, tolling remedy, and additional remedies discussed below (collectively, “New Commitments”) to all members of GSK’s Corporate Executive Team (CET) and to any Vice Presidents and Senior Vice Presidents in Grades 0, 1, and 2 who are based in the United States (collectively “Covered Executives”). The New Commitments will apply prospectively to Covered Executives beginning with the 2013 bonus plan year and LTI Plan grants. 

GSK CME CIA Obligations 

GSK represented in its CIA that it gives grants for medical education of HCPs on a limited basis and that it provides such grants only to educational providers (including academic medical centers, hospital or delivery systems, or professional medical associations that represent HCPs who deliver patient care) that satisfy pre-set criteria established by GSK.  Potentially eligible educational providers are selected annually and invited to submit grant proposals for a future fiscal year.  GSK represents that it does not provide funding to any commercial providers of medical education. 

GSK’s Medical Affairs organization reviews the grant proposals from the potential providers and makes recommendations for approval based on objective criteria, compliance policies and procedures, and budget availability.  GSK represents that its commercial organization (including the sales and marketing departments) has no involvement in, or influence over, the review and approval of medical education grants.

GSK shall continue the medical education grant process described above (or an equivalent process) throughout the term of the CIA, and shall notify the OIG in writing at least 60 days prior to the implementation of any new system subsequent to the Effective Date. 

To the extent not already accomplished, within 120 days after the Effective Date, GSK must establish a Grants Monitoring Program through which it will conduct audits for each Reporting Period of at least 10 medical education grants for the first Reporting Period and 5 medical education grants for subsequent Reporting Periods.  

The Grants Monitoring Program must select grants for review both on a risk-based targeting approach and on a sampling approach.  GSK Monitoring Personnel conducting the Grants Monitoring Program must review proposal documents (including grant requests), approval documents, contracts, payments and materials relating to the grant office’s review of the requests, and documents and materials relating to the grants and any events or activities funded through the grants in order to assess whether the activities were conducted in a manner consistent with GSK’s Policies and Procedures. 

Results from the Grant Monitoring Programs, including the identification of potential violations of policies, must be compiled and reported to the Compliance Officer (or compliance personnel designee) for review and follow-up as appropriate.

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