Schering-Plough Agrees To Settle Medicaid Fraud Allegations for $345.5 Million
New Jersey-based Schering-Plough on Friday pled guilty to violating federal anti-kickback laws by overcharging Medicaid for the allergy medicine Claritin and agreed to pay states $345.5 million in a settlement with the U.S. attorney's office in Philadelphia, the Philadelphia Inquirer reports. Three former Schering-Plough employees in 1998 led the government to investigate the firm's efforts to keep Claritin on the approved-drug lists of health insurers Cigna and PacifiCare Health Systems. Prosecutors said Pennsylvania-based Cigna demanded that Schering-Plough reduce the price of Claritin to keep it in line with competitor Aventis Pharmaceuticals' allergy medication Allegra. Schering-Plough refused to lower the price, but instead offered Cigna a $10 million "price-reduction package" that included an annual "data fee" equal to 2% of the annual gross sales of Schering-Plough's drugs to Cigna, prosecutors said. According to prosecutors, the company also gave Cigna $3 million in "deeply discounted" Claritin pills, health management services "at far below fair market value" and an interest-free loan "in the form of prepaid rebates" (Loyd, Philadelphia Inquirer, 7/31).
Schering-Plough paid California-based PacifiCare about $25 million in 1998, 1999 and 2000 to steer customers to purchase Claritin, prosecutors said (Abelson, New York Times, 7/31). The company offered PacifiCare money for respiratory-drug costs, discounts for Schering-Plough products and Internet development services and an interest-free loan in the form of prepaid rebates. U.S. Attorney Patrick Meehan said no charges will be filed against Cigna or PacifiCare (Philadelphia Inquirer, 7/31). A Cigna spokesperson said the company "has been cooperating with the investigation and doesn't expect any civil or criminal claims to be brought against it or any of its employees" (Dunaief, New York Daily News, 7/31). PacifiCare said it "has never been implicated in any of these charges, but is solely a cooperating witness. We are pleased that the matter has now been resolved."
Schering-Plough's settlement is divided into a criminal fine of $52.5 million and a civil damages award of $293 million. The three whistleblowers involved in the suit will split $31.7 million of the settlement. Schering-Plough said part of its fine would be offset by a Medicaid credit for $53.6 million in rebates the company has previously paid. Under the agreement, Schering-Plough marketing subsidiary Schering Sales will plead guilty to one count of fraud (Philadelphia Inquirer, 7/31). The subsidiary also will be banned from participating in federal health programs for five years, but the agreement will not impact Schering-Plough's ability to sell prescription drugs to government programs, prosecutors said (Caruso, AP/Charlotte Observer, 7/31). The company also will sign a corporate integrity agreement requiring audits of its Medicaid pricing system through 2009.
Meehan said Schering-Plough's actions kept Claritin on preferred drug lists "without triggering a reduction in the price it charged Medicaid for the drug. Schering called it a 'value added.' We call it a kickback." He added, "This was not a mistake. It was a marketing strategy. There is a point at which a drug manufacturer's pursuit of market share crosses the line that separates competition and illegal conduct" (Philadelphia Inquirer, 7/31). Schering-Plough has said it will seek to "encourage ethical behavior" by changing its methods of paying bonuses, tracking customer discounts and calculating actual drug costs, the Times reports. Brent Saunders, a Schering-Plough senior executive who oversees the firm's compliance and business practices, said the company is "making progress" under a "mantra [of] transparency" to the government (New York Times, 7/31).
NPR's "All Things Considered" on Friday reported on the settlement. The segment includes comments from Meehan; Hardy Myers, Oregon attorney general; and Brent Saunders, chief compliance officer for Schering-Plough (Prakash, "All Things Considered," NPR, 7/30). The complete segment is available online in RealPlayer.This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.