Ability of Government To Ban Pharmaceutical Companies From Medicare, Medicaid After Fraud Settlements Examined

USA Today on Monday examined a 1996 law mandating that drug companies that plead guilty to or are convicted of health care fraud felonies after Aug. 21, 1996, be banned from doing business with federal programs such as Medicare and Medicaid. The government "has yet to use its power" to exclude major drug companies from the programs, according to USA Today.

However, at least four large drug companies since 2001 have reached settlements with the government over fraud allegations. "The settlements are structured very carefully to avoid mandatory exclusion," John Bentivoglio, a former Department of Justice attorney who represents health care companies, said. For example, in July, Schering-Plough paid the federal government $345 million to settle charges that private insurers received lower prices on allergy drug Claritin than the government, and an inactive Schering-Plough subsidiary pleaded guilty -- excluding the subsidiary from federal programs but not Schering-Plough itself.

In addition, when Pfizer's Warner-Lambert division in May agreed to pay $430 million in fines and pleaded guilty to illegally marketing the drug Neurontin, it only admitted guilt "through at least Aug. 20, 1996" -- one day before the mandatory exclusion law was implemented -- even though prosecutors alleged the illegal marketing continued beyond that date. Similarly, TAP Pharmaceuticals in 2001 and Bayer in 2003 pleaded guilty to illegal acts prior to August 1996 despite allegations that their misconduct also occurred later.

Timothy Jost, health law professor at Washington and Lee University, said the government has been avoiding excluding pharmaceutical companies from federal programs because it is "dependent on them." If large drug makers were prohibited from contracting with the program, the nation's 80 million Medicare and Medicaid beneficiaries would "suffer by losing needed drugs, especially those made by just one company," according to USA Today.

However, some say prosecutors "can unfairly threaten to use the penalty to win big settlements," USA Today reports. According to C. Boyden Gray, an attorney at Wilmer Cutler Pickering Hale and Dorr, exclusion from federal health programs would be "a death sentence" for drug companies (Schmit, USA Today, 8/16).