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Whistleblowers' Payday

Schering Plough execs divvy up $31M for unearthing big fraud

Jul 31, 2004 | New York Daily News

Three whistleblowers are collectively $31 million richer thanks to Schering-Plough's agreement to plead guilty to criminal and civil charges it defrauded the Medicaid insurance program.

Their colossal payday will come out of a $345.5 million settlement the company's paying to the feds. Schering Plough, maker of Claritin, pleaded guilty to a federal criminal charge that it gave HMOs kickbacks, which lowered their drug prices, while charging Medicaid top dollar.

The whistleblowers, who were high level execs at a unit of Schering Plough, knew something was amiss when senior managers brushed aside a sexual harassment claim by a secretary.

One of the whistleblowers, Charles Alcorn, told managers his secretary complained about another exec harassing her physically and verbally. Alcorn said this exec had made similar advances to other secretaries.

"The company sought to protect" the exec who was allegedly harassing the secretary, Alcorn said. "There was a wall of secrecy around this entire fraudulent operation."

Indeed, the harasser had won the company's protection as an architect of the Medicaid scheme, Alcorn added.

Working with the Department of Justice, the whistleblowers sued the company in 1998 under the False Claims Act.

For several years, Alcorn, 40, continued to work for New Jersey-based Schering Plough, while providing information to help the government build its criminal and civil case.

During that time, the company tried unsuccessfully to pressure Alcorn and his fellow whistleblowers to approve documents that perpetuated the fraud.

For the whistleblowers, the settlement is not only a big payday, it ends a period of social isolation.

"When we refused to sign off, we were targeted and isolated," Alcorn said.

Another whistleblower, Beatrice Manning, 57, described a meeting with the U.S. attorney.

"My husband had just had surgery for a detached retina and was lying flat on his face for two weeks," said Manning. "I had to ask friends to stay with him [without any explanation] so I could go to Phili."

Alcorn is now in his second year of law school at Temple University in Pennsylvania. He wants to pursue health care litigation and patient advocacy.

Manning, meanwhile, is studying at a theological school and is specializing in business ethics.

A third whistleblower, Raymond Pironti, Jr., was on vacation and was unavailable for comment.

"I hope other people will come forward and that companies can't count on the compliance of their employees when they're doing outrageous profit-taking that's criminal," Manning said.

Both Manning and Alcorn offered some advice to would-be whistleblowers.

"I would advise someone who's thinking about being a whistleblower not to do it for the money," Alcorn said. "You won't last. It can take five to seven years" and the outcome isn't guaranteed.

The deals come as pharmaceutical companies receive increasing attention from prosecutors.

"There are literally millions of people affected on a daily basis by the cost of drugs," Patrick Meehan, U.S. attorney in eastern Pennsylvania told the Daily News. "People struggle on a day to day income to pay for these life sustaining drugs."

In the case of Schering Plough, the company figured out all kinds of clever ways to funnel money back to HMOs, including Cigna which was named in the settlement.

"Cigna 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," a spokesman said.

At one point, Schering Plough paid a consultant $10,000 to provide research. The drug-maker then wanted to pay 10 times that price for that same piece of research from an HMO, said Manning.

Meanwhile, in a separate action, another drug-maker, Bristol-Myers Squibb, will pay $300 million to settle a securities class action suit accusing it of cooking its profits.

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