Glaxo agrees $151m payout to settle US claims it inflated the price of its drugs

GlaxoSmithKline, the UK's biggest drug maker, is paying $151m (£84m) to settle claims that it defrauded US taxpayers out of hundreds of millions of dollars by inflating the price of prescription medicines.

The company was facing lawsuits from the federal government and a growing number of states over sales methods that enabled doctors to overcharge the government health programmes which cover the cost of drugs for uninsured Americans.

Last month, California became the latest state to accuse GSK - and 38 other pharmaceuticals companies - of inflating the average wholesale price (AWP) on which government payments are based, while offering extensive discounts as incentives to doctors to use their medicines.

GSK denies its marketing practices were illegal. In a statement yesterday, the company said: "Numerous government reports and other evidence showed that the government was well aware that, by using AWP as its reimbursement benchmark, it was paying doctors more than the doctors paid for the medicines.

"For public policy reasons, the government maintained those reimbursement levels for many years. Notwithstanding this, GSK decided to settle the case, without admitting any wrongdoing, to put this historical matter behind it."

The settlement covers two drugs used to treat nausea associated with chemotherapy, Zofran and Kytril. So far, only Massachusetts has agreed the settlement, although other states are expected to join.

The case was first brought as a so-called whistleblower suit by Ven-A-Care, a Florida pharmacy. The company will receive about $26m from the settlement under the US's legal system of incentives and protection for whistleblowers, the Justice Department said.

It marks another blow to the reputation of the pharmaceutical industry in the US at a time when polls put its public standing on a par with the tobacco industry. Legal pressure on dubious marketing practices has been used by state and federal agencies as a tool to drive down drug prices and limit the ballooning costs of the public health system.

Paul Diggle, an analyst at the specialist life sciences investment bank, Code Securities, said the size of GSK's settlement was in line with expectations. "Just about every company in the US has got a case like this running and most will settle," he told Bloomberg.

The settlement does not resolve a bigger lawsuit over prices of a larger class of drugs brought by a coalition of consumer groups, health plans and US states, which will be heard in Boston.