With its July 2 agreement to pay $3 billion to resolve criminal and civil charges related to off-label marketing, GlaxoSmithKline (GSK) became the latest pharmaceutical company to settle such charges.
The payment is the highest ever by a drug company and represents the largest health care fraud settlement in U.S. history, breaking the record set in 2009 by Pfizer’s $2.3 billion off-label marketing settlement. The GSK settlement comes after an investigation by the Department of Health and Human Services’ (HHS) Office of the Inspector General (OIG), the Food and Drug Administration (FDA) and the Federal Bureau of Investigation. (For a complete breakdown of the settlement, see “The Allegations.”)
As part of the settlement, GSK also agreed to enter into a comprehensive, 123-page Corporate Integrity Agreement (CIA) with the OIG. Reflective of the severity with which the government has taken to treating health care fraud, the five-year CIA introduces some requirements never before seen in such an agreement but likely to reappear in future CIAs.
“This is absolutely the most comprehensive and far-reaching Corporate Integrity Agreement that’s been entered to date,” says Gary Messplay, co-chair of Hunton & Williams’ food and drug practice group. “The number of pages is more than any I’ve seen, and it’s novel and sweeping insofar as some of its specific provisions.”
Comp and Clawbacks
One unprecedented game-changer in the CIA is the requirement that GSK overhaul some of its compensation practices, including, in some cases, the exclusion of incentive-based compensation for sales representatives, a measure aimed at removing the motivation for improper promotion and sales. Historically, drug sales has been a volume business, and the compensation has reflected this. The GSK CIA severs that tie.
“This is a pretty significant indication of OIG’s willingness to push the industry into a new business model. It’s a sea change in the way that financial incentives are used for customer-facing sales reps,” says Thomas Beimers, special counsel at Faegre Baker Daniels. Beimers previously worked both in the OIG and the DOJ’s Medicare Fraud Strike Force.
Prior to the CIA’s effective date, GSK had already implemented a program to eliminate incentive compensation. Beimers says other pharmaceutical companies, as well as device manufacturers that often have similar compensation arrangements, will be looking to see how the program is operationalized—what metrics GSK will use to compensate sales representatives, how the reps receive the new arrangements, how to track the program’s impact on sales and how physician customers respond. Although companies may not voluntarily adopt such a program, they often use CIAs as yardsticks upon which they measure their own compliance programs, Messplay says.
Another significant development in the CIA is the mandate to establish an “executive financial recoupment program”—a clawback mechanism under which executives found to be involved in any “significant misconduct” or found to be aware of employee violations will be forced to forfeit up to three years of annual performance pay. It even applies to employees no longer working for GSK at the time the clawback is triggered.
The DOJ and OIG have struggled for years with how to ensure individual executives have real skin in the game—they rarely find themselves held individually liable, as making such cases requires smoking gun-type evidence that often doesn’t exist in the highly sophisticated world of Big Pharma. The clawback provision seems to be a way to get around such barriers and target individual executives.
“This is the first instance in which the individuals who are subject to this provision of the CIA didn’t necessarily do anything wrong,” Messplay says. “It’s the government’s effort to make senior management more accountable. I have no doubt that this will be effective.”
The CIA also reaches into the boardroom to impose compliance supervisory requirements on the board of directors—a new arrangement that began surfacing in CIAs in the past few years. The GSK CIA requires the board to meet at least quarterly to review and oversee the company’s compliance program and personnel. Each member of the board must then sign a resolution certifying that the compliance program is effective.
“This development is quite new and quite controversial,” says Mary Jo White, former U.S. Attorney for the Southern District of New York and now a partner in Debevoise & Plimpton. “There’s a very strong argument that this really goes beyond what a board could be expected to do or really has the expertise to do.”
Such developments in the CIA appear to be efforts to legislate what regulators see as best practices through settlement agreements, White says. Another prime example of this in the GSK CIA is a provision that gives the OIG the power to require a product recall—recall expertise in the federal government resides in the FDA, which doesn’t have such a power.
“That’s a prime example of legislating an enforcement issue by virtue of a settlement agreement,” White says. “And it has all the pitfalls and weaknesses associated with [doing this]: You really need the expertise and an open rulemaking process that applies to everyone.”
Finally, the criminal plea agreement imposes DOJ oversight of GSK compliance efforts, a measure that continues to expand compliance requirements set forth in other recent plea agreements and comes on top of the OIG oversight outlined in the CIA. Under the plea agreement, GSK is required to provide reports and certifications to the Health Care Fraud Unit of the U.S. Attorney’s Office in Boston and the Consumer Protection Branch of the DOJ for five years. It’s a new development and also raises the question of how the OIG and DOJ oversight will interact. In May, Abbott Laboratories entered into a criminal plea agreement related to off-label promotion that imposed similar compliance requirements, but Abbott faced a five-year term of probation supervised by the court rather than the DOJ.
“What if the DOJ and HHS-OIG don’t agree on something? Who has the lead role in that, if anybody?” White says. “It’s a pretty significant ratcheting-up and a pretty significant injection of the DOJ and the courts into these cases, which has not been there before.”
The GSK settlement is a signal that the government is going to continue bringing off-label marketing cases and expanding the requirements the related settlement agreements impose, clearly in a continuing effort to discourage illegal drug-marketing practices.
“Companies are starting to get the message,” says Richard Beckler, a partner in Bracewell & Giuliani. “But these cases are going to go on as long as there are drugs and as long as there is advertising. For as long as I can remember, doctors have in one way or another been compensated by some pharmaceutical companies or medical device companies.”