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Schering - Plough Settles Overcharging Case

Jul 31, 2004 | AP

Schering-Plough Corp. agreed to pay $346 million in fines and damages to settle charges that it overcharged for drugs sold through Medicaid, the government's health program for the poor, the company announced Friday.

The pharmaceutical company said it would also plead guilty to a federal criminal charge concerning a payment to a managed care customer.

Federal law requires drug makers to give their lowest prices to Medicaid, but a group of whistle-blowers accused the company of giving some private health care providers better deals on its drugs by offering them kickbacks.

Federal prosecutors in Philadelphia began investigating the allegations in 1999 as part of a broad inquiry into pharmaceutical marketing practices.

The Kenilworth, N.J.-based company said that as part of the settlement it would pay a criminal fine of $52.5 million and civil damages of $293 million. Some of those damages, though, will be offset by credit the company will receive for $53.6 million in Medicaid rebates that it has previously paid.

``We are pleased that we are now putting this matter from the past behind us,'' said Schering-Plough senior vice president Brent Saunders.

The criminal charge stemmed from a $1.8 million kickback Schering-Plough offered to a health maintenance organization that was threatening to drop its drug Claritin because of its high cost. The company offered to pay a false ``data fee'' amounting to 2 percent of the annual gross sales of Schering drugs to the HMO.

Pat Meehan, U.S. Attorney for eastern Pennsylvania, said his office's pursuit of Schering-Plough should serve as an example that illegal marketing practices can be costly.

``Schering used terms like 'data fee' and 'value added' as camouflage for what was nothing more than an old-fashioned kickback,'' Meehan said in a written statement. ``This wasn't a mistake. It was a marketing strategy. The result was that programs created to provide health care to the poorest among us were actually paying more for drugs than those who have private health insurance.''

The settlement was first reported July 16 by The New York Times.

Federal investigations in Philadelphia, Boston and Washington have resulted in subpoenas to nearly every big drug maker. Bayer has paid $257 million and GlaxoSmithKline has paid $86.7 million to settle similar allegations.

Prosecutors in Boston and Washington are also investigating whether Schering-Plough paid physicians to prescribe its drugs, and whether it reported inflated wholesale prices to the Medicare program that led government health officials to pay more than necessary for its drugs, the Times reported. Over the last two years, the company has set aside $500 million to pay fines expected in those cases and the Philadelphia inquiry.

In morning trading on the New York Stock Exchange, Schering-Plough shares were down 10 cents at $19.43.

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