US insurers to sue SmithKline for overcharging

Sameena Ahmad

SmithKline Beecham yesterday denied that it defrauded 37 private US health insurers who plan to sue the drugs giant for up to US$1.5bn in damages for overcharging them for health tests. However analysts yesterday said they expected SmithKline to settle out of court for a much smaller sum.

The lawsuit against SmithKline's US-based clinical laboratories division comes six months after the company paid $325m in an out-of-court settlement with the US government insurers Medicare and Medicaid for overcharging. The private insurance companies are suing SmithKline under the Racketeer Influenced and Corrupt Organisations Act. Under this act, they are accusing SmithKline of corruption and a deliberate intention to defraud.

A spokesman for SmithKline said: "We rigorously deny that we intended to defraud any insurance company. We think the claims in this suit are grossly exaggerated and the legal bases for recovery are highly questionable."

The insurance companies are riding in on the coat-tails of the US government case which proved that between 1989 and 1995, SmithKline's clinical labs division engaged in questionable practices such as billing for unnecessary and expensive medical tests and altering claim forms. Such accusations have been brought against a number of laboratory companies operating in the US.

However, unlike the government lawsuit, which never alleged corruption or fraud, the current crop of suers are alleging much dirtier practices, including collusion between doctors and the laboratories to maximise insurance claims.

The SmithKline spokesman yesterday admitted there had been problems of overcharging, but never a question of intent to defraud. "A lot of this is about understanding the rules of the US healthcare system. The claim forms were incredibly complex. At that time doctors were asking us to process a lot of tests. We carried them out because the doctors asked us to. That is not fraud."

SmithKline emphasised that since the Medicare case, its practices had changed: "There is new management in clinical labs, all our practices and claim forms have been improved. We are working closely with people so as not to fall foul again."

Analysts dismissed the issue as a storm in a teacup. Mark Brewer at Hoare Govett said: "It's overblown. The only surprising thing about this is the number of companies suing. SB said last year that it expected more litigation after Medicaid." Mr Brewer said the company, which announced a $400m provision to cover litigation at clinical labs, would settle out of court, probably for $130m-$140m, the amount of the provision remaining after the US government settlement plus a future tax rebate.

"These insurance companies will find it very difficult to prove in court both that SB was intent on defrauding them and was a corrupt organisation. SB has made it clear that it has this pool of money that is fair and reasonable. If these companies don't want to take it, they could face protracted litigation and lose everything," said Mr Brewer.