By Jackson Lewis
The U.S. Department of Justice reported a major $750 million
settlement arising from claims first asserted by an
employee/whistleblower against her former employer – GlaxoSmithKline PLC
(“GSK”). The civil and criminal penalties stem from allegations that
the company manufactured and distributed defective and adulterated drugs
from its now-closed manufacturing facility located in Puerto Rico.
Employee’s Claims against the Employer
Cheryl D. Eckard worked as the company’s quality manager. She claims
that she alerted GSK management about the problems associated with the
facility in question and the company fired her rather than address the
appropriate issues. Thereafter, Eckard filed a False Claims Act (“FCA”)
Qui Tam action in the U.S. District Court of Massachusetts.
As a “Relator” under the FCA, she filed claims on behalf of the United
States, against GSK. Eckard alleged that during her tenure at GSK,
from 1992 to 2003, she had repeatedly alerted management to quality
issues at the Puerto Rico facility. Her specific allegations included
the following: (1) some batches of Kytril (an anti-nausea medication)
and Bactroban (a baby ointment) were contaminated with bacteria; (2)
Paxil CR tablets were splitting apart, causing some consumers to receive
either products with no active ingredients and/or products with only
the active ingredient layer and no controlled release mechanism; and (3)
that Avandamet was being manufactured with higher or lower amounts of
the specified ingredients. She alleged that after reporting the matter
to several GSK executives, she was terminated.
Background on Settlement Terms
The 26-page, published settlement agreement included among the
parties the U.S. Department of Justice, the U.S. Attorney’s Office for
the District of Massachusetts, the Office of Inspector General of the
Department of Health and Human Services, the Department of Veteran
Affairs, Cheryl Eckard, and GlaxoSmithKline PLC.
The agreement recites the Government’s allegations that GSK caused
claims to be submitted to the Medicaid Program, the Department of
Veteran Affairs and other federal agencies for payment of certain
“Covered Drugs,” including Paxil CR, Avandamet, Kytril and Bactroban.
The alleged defects included deficiencies in strength, purity, and/or
quality of products resulting in fraudulent claims for payment of such
“adulterated” products.
GSK agreed to pay the United States and the Medicaid Participating
States (“MPS”) the sum of $600 million, plus accrued interest
($436,440,000 will be paid to the United States as the federal
settlement and $163,560,000 will go to the MPS). GSK will pay an
additional $150 million in criminal fines.
Implications for Employers
The Eckard case against GlaxoSmithKline has implications and
lessons for many organizations – publicly traded companies that do
business with the federal government, as well as privately held federal
contractors. Among them:
- The False Claims Act is a Major Weapon for Law Enforcement: The FCA
is one of the federal government’s key weapons for addressing corporate
fraud. Now it also may be wielded against alleged health care fraud in
Medicaid/Medicare reimbursements. With continued anxiety over the high
costs of health care, organizations vulnerable to claims they have
defrauded the government (even where the alleged fraud is unwitting)
will likely face an uphill battle. Zealous regulators charged with
stamping out fraud and courts with jurors already antagonistic toward
organizations they believe are contributing to exorbitant health care
costs are likely to prove formidable adversaries and skeptical
factfinders.
- Employees Have Strong Incentives: Under FCA’s Qui Tam
provisions, the settlement agreement provides that Eckard will receive a
hefty 22 percent share of the federal settlement amount, which comes to
more than $96 million. This recovery is one of several since the 2009
amendments to the FCA, and stands as solid proof that
employee-whistleblowers can enjoy a big pay-day by pursuing claims
against their employer. We may be sure this case will capture the
attention of employees with an axe to grind against their current or
former employer.
- Compliance and Ethics Programs are Essential but must be Managed:
As never before, business organizations must be capable of identifying
and combating fraudulent behavior. Effective compliance and ethics
programs communicate a company’s behavioral standards, but they also
educate employees on becoming a whistleblower. Organizations developing
such programs, therefore, will need to monitor and improve their
operations systematically. Employees who make internal reports must be
treated with care. For example, employees who have made complaints that
might qualify as whistleblower claims need not be provided with
guaranteed, lifetime employment, but, by the same token, they should be
protected from retaliation. To that end, a thorough, objective, and
documented process for consideration of employee terminations is
strongly indicated.
The Corporate Governance practice group of Jackson Lewis LLP assists
clients with development of best practice compliance and ethics programs
that meet the recommendations of the U.S. Sentencing Commission
Guidelines for Organizations and the mandates of the Federal Acquisition
Regulations. The firm defends clients against all whistleblower
claims, including those arising from False Claims Act Qui Tam and Sarbanes-Oxley Act.