N.J. A.G. Reports Glaxo SmithKline to Pay $2.1 Million to Medicaid Program as Part of Settlement

May 5, 2004

New Jersey Attorney General Peter Harvey announced that New Jersey’s Medicaid Program will receive more than $2.1 million as a result of a national settlement which requires pharmaceutical giant Glaxo SmithKline to pay $87 million in damages and penalties to federal and state Medicaid programs.

As part of the settlement, the Division of Criminal Justice – Office of Insurance Fraud Prosecutor’s Medicaid Fraud Section separately negotiated an additional $850,608 to reimburse New Jersey’s state-operated prescription drug programs.

“This settlement returns a sizable amount of money to the State of New Jersey and to the various prescription drug programs which assist and benefit those citizens who need the aid the most. Every dollar lost to fraud or abuse is one less dollar available to help the most needy citizens of our state. The Insurance Fraud Prosecutor is committed to fighting healthcare fraud and returning much needed dollars to the state treasury,” said Harvey.

According to Vaughn McKoy, director, Division of Criminal Justice and Insurance Fraud Prosecutor Greta Gooden Brown, the national litigation alleged that Glaxo SmithKline sold pharmaceutical products to privately-operated health management organizations (HMO’s) at deeply discounted prices, concealed the transactions, and then under-reported “best price” information to the Center for Medicaid and Medicare Services (CMS). The effect of this deception diminished the amount of money the company was required to pay federal and state Medicaid programs – thus cheating the states out of significant funding for prescription drug programs.

Gooden Brown noted that in order to receive Medicaid reimbursement for drugs, pharmaceutical manufacturers enter into a contract under the Medicaid Drug Rebate statute which requires the return of monies to state and federal Medicaid programs in the form of rebates. In order to calculate the amount of the rebate, pharmaceutical companies must provide “best price” information to CMS – “best price” information being the lowest price that a manufacturer offers a product for sale to commercial purchasers. As a result of providing inaccurate “best price” information, Glaxo SmithKline effectively discounted the amount of rebate monies owed to the individual state Medicaid programs.

According to Supervising Deputy Attorney John Krayniak, Office of Insurance Fraud Prosecutor’s Medicaid Fraud Section, Glaxo avoided higher rebate payments by re-labeling or re-packaging certain drugs under private HMO labels.

For example, under a private labeling agreement with California-based HMO Kaiser Permanente, Glaxo manufactured, packed and shipped Flonase to Kaiser, substituting Kaiser’s identification number for the Glaxo identification number. The result of the private labeling arrangement was to allow Kaiser additional price discounts on Flonase without having to report the discounted price as Glaxo’s “best price,” thus allowing Glaxo to avoid paying higher rebates to the state Medicaid programs. Similarly, Glaxo SmithKline provided Kaiser discount prices on Paxil without reporting the discounted price to CMS in order to avoid paying higher Medicaid rebates.

Krayniak said that New Jersey is one of the few states in the country that administers Medicaid as well as state-funded pharmaceutical assistance programs – the Pharmaceutical Assistance to the Aged and Disabled (PAAD) and the Senior Gold Program.

As with Medicaid, the state-sponsored programs require pharmaceutical manufacturers to adhere to the same “best price” rules in order to participate in the PAAD and Senior Gold programs. Based on this requirement, the Medicaid Fraud Section of the Office of Insurance Fraud Prosecutor separately negotiated and received an additional $850,608 as part of the Glaxo SmithKline settlement.

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