GlaxoSmithKline: Selling the Spread, Billing the Leftovers

In the GSK Zofran Kytril AWP settlement, GlaxoSmithKline paid more than $150 million over allegations that it inflated drug reimbursement prices, sold customers on the resulting profit and encouraged extra billing from pooled Kytril vials. The pricing allegation turned the government’s payment formula into a sales tool. The vial-pooling allegation took the same pursuit of extra reimbursement into the treatment room. For someone who knows the purchase prices, the sales pitch or the billing, this case connects all three.

The Justice Department announced the civil settlement on September 20, 2005. Zofran and Kytril were anti-emetic drugs used primarily alongside oncology and radiation treatment. This pharmaceutical fraud case concerned the prices and claims behind those drugs.

How AWP Created a Profit Worth Selling

Average wholesale price was a published drug-price benchmark used to set reimbursement. It could sit well above what a provider actually paid for the drug. That gap gave average wholesale price fraud its commercial appeal: the manufacturer could offer a customer a return funded by the healthcare program paying the bill.

The benchmark traveled through commercial drug-price publications. Manufacturers supplied pricing information, and payers used the published figures to calculate what they would reimburse. The provider’s purchase invoice recorded a different transaction. A price in a reimbursement schedule could therefore look authoritative while saying little about the money that changed hands when the drug was bought.

The Centers for Medicare & Medicaid Services’ August 2003 proposed Medicare payment reforms made that difference concrete. Its comparison of Medicare allowances with market-price data put the spread at 25 percent for Kytril and eight percent for Zofran.

The provider earned the difference between reimbursement and acquisition cost. Patients had a stake in that difference too: Medicare Part B coinsurance contributed to the allowed payment, so an inflated reimbursement benchmark could reach the patient’s bill as well as the government’s. The supposedly technical choice of a pricing benchmark helped decide who kept the money and who paid it.

What GSK Allegedly Sold Along With the Drugs

The government alleged that GSK set and maintained inflated prices knowing that federal health care programs used them to establish reimbursement rates. It also alleged that GSK used the spread to market, promote and sell Zofran and Kytril to existing and prospective customers.

Those allegations connect pricing to sales. A customer could be shown what it would pay for the drug and what a government program would reimburse. The attractive part of the offer was the money left between them. Under the government’s account, the manufacturer could win business by promising a margin that depended on a false reimbursement price.

GSK sold the drugs, but the customers submitted the reimbursement claims. The United States contended that the company’s inflated pricing caused those false claims. That is the practical connection in this drug pricing fraud theory: a decision inside the manufacturer changes a bill sent by someone else.

A sales pitch built around that margin also puts pressure on competitors that report prices honestly. In its earlier Bayer pricing case, the government alleged that physicians and home health companies passed over products whose manufacturers refused to create those windfalls. The competitor selling on the drug’s actual price has to compete with a promise of extra public money.

Kytril Vial Pooling Created Another Bill

The Kytril vial-pooling allegation concerned an extra dose assembled from leftovers and then billed again. The Justice Department described GSK as encouraging customers to pool leftover vials, administer the resulting dose to a patient and re-bill Medicare or another federal healthcare program.

The government called this a “double dipping” billing scheme. The sequence matters: the leftover drug became another administered dose, and that dose became another claim. The allegation followed the drug through the customer’s handling and billing, beyond the price GSK reported.

That gives an insider a different view of the conduct. Someone involved in preparing doses may know how the remaining drug was combined. Someone handling claims may know how the additional dose was billed. Someone in sales may know what GSK encouraged customers to do. In reviewing a case of this kind, we connect those accounts to the administration and billing records that show where the extra reimbursement arose.

The Settlement and Whistleblower Reward

The federal recovery was approximately $140 million, and the states’ recovery for their Medicaid share was $10 million. Medicare and Medicaid money both sat behind the resolution.

The investigation began after a small home-infusion company and its principals brought a civil False Claims Act suit. The Justice Department announced that the whistleblowers would receive approximately $26 million as their share of the recovery.

A home-infusion business brought the case from outside GSK. That is a useful perspective in a pricing case: what the provider pays and what the program allows are visible from different records. Knowledge of the actual transaction can expose what a published price conceals.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Changed After the Settlement

GSK agreed to add pricing obligations to its existing Corporate Integrity Agreement with the Department of Health and Human Services’ Office of Inspector General. The federal announcement said the company would have to report accurate average sales prices and average manufacturer prices for covered drugs.

Medicare’s average-sales-price system took effect in January 2005. Its average sales price calculation uses manufacturers’ sales data, with discounts and other price concessions affecting the reported amount. The accuracy of the manufacturer’s numbers remained central even as the benchmark changed.

Public Citizen’s 2018 study, Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017, attributed part of the decline in state enforcement to earlier AWP investigations reaching their conclusions. It also suggested that Medicaid’s move to actual acquisition cost could reduce opportunities for AWP fraud. Other payment arrangements still gave the same sales tactic room to operate.

The Same Sales Pitch Reached Compounding Pharmacies

Professional Compounding Centers of America later faced allegations that it used inflated ingredient prices to market reimbursement margins to pharmacies. The Justice Department announced its complaint in November 2021, in a separate whistleblower case involving compounding ingredient AWP fraud.

The government’s complaint put the sales instruction plainly:

The complaint also alleged advice on billing and formulas designed to maximize pharmacy reimbursement. In that case, the government said TRICARE paid the resulting false claims. The products and buyer had changed, but the alleged inducement was familiar: buy from us because of what you can collect from the payer. That is why the sales instructions belong beside the pricing reports when we examine the spread.

What Evidence Is Needed to Prove Fraud?

For the pricing and billing practices alleged here, the useful evidence connects reported prices, actual purchases, sales instructions and government claims. We examine how the benchmark reached the payment calculation, what customers really paid and what they were told about their expected return.

For a pooling allegation, the comparison also follows the drug: the vials used, the doses administered and the claims attached to them. Purchase invoices, pricing submissions, sales presentations and administration records answer different parts of the same question. We work with the insider who can explain how those records fit together and who made the decisions behind them.

You Know What the Customer Was Promised

If you saw a drug sold on an inflated reimbursement margin or leftover doses turned into extra claims, speak to one of our whistleblower experts about how the spread was sold or the extra dose was billed. We build the case around your knowledge of the transactions and bring in pharmaceutical fraud whistleblower lawyers who understand price reporting and provider billing. We stay beside you as those business decisions become the basis of your strongest pharmaceutical whistleblower case.