Schering-Plough Settlement Represents Third Largest Against Pharma

In the latest settlement of a whistleblower lawsuit against a major pharmaceutical company, Schering-Plough and a sales subsidiary will pay $435 million in restitution and penalties after pleading guilty to conspiracy to withhold money from state Medicaid programs, among other offenses.

The payout is the third largest (settlements against TAP and Serono were first and second), and it is certainly not the last fraud lawsuit against pharma.

"The government will continue to scrutinize conduct both at the corporate level and the field, sales force level," said Laurence Freedman, a partner at Patton Boggs who specializes in the False Claims Act and its qui tam (or whistleblower) provisions. "It is absolutely a trend and growing trend," said Freedman, who was not involved in this case. "It's been going strong for years and it's going to continue."

USA v. Schering Sales Corporation is the latest in a long string of successful FCA lawsuits, Freedman noted, adding that state and county governments have become "interested and active" in investigating what they regard as a low-level of compliance with sales and marketing regulations.

"The government is dead serious about vigorous and vigilant prosecution," Freedman said.

The first charge against Schering-Plough addressed allegations that the company provided a discounted price for Claritin Redi-Tabs (fast-dissolving loratadine tablets) to Kaiser Permanente without offering the same price to state Medicaid programs, as required under the Medicaid Rebate Program.

Kaiser representatives had been willing to pay only $1.10 per Redi-Tab, a price that would have required the drug maker to increase its rebates to the government. For about 18 months, Schering-Plough conspired to "ship sufficient trade size packages of Claritin Redi-Tabs to the HMO for free as 'samples' so that the blended price between the drug purchased by the HMO and the drug provided for free was $1.10 per Redi-Tab," a settlement document states.

Manufacturers may legally provide samples to HMOs as long as they are not contingent on the purchase of that or another product.

Separately, Schering-Plough marketed cancer drugs Intron A (interferon alfa-2b) and Temador (temozolomide) for off-label uses, and then lied to FDA about the scope of these marketing tactics, according to a settlement document. Those tactics included off-label sales training classes, business plans that included off-label sales goals, and compensation to drug reps based on off-label sales, the charges state.

In addition, the drug maker paid physicians up to $500 for each patient that was started on its hepatitis C drugs PEG-Intron (pegylated interferon alfa-2b), Rebetron (interferon alfa-2b, ribavirin), and PEG-Intron combination therapy, according to the settlement. It adds that other inducements included funding physician assistants at busy practices and paying for attendance at Schering-sponsored events.

In a report, Fitch Ratings praised Schering-Plough's new management team for reducing and settling litigation it inherited from the company's former leaders. It does not expect the large settlement to impact the drug maker's turnaround efforts.

Freedman also acknowledged that many of the recent decisions--including the Schering-Plough settlement--came out of a "pipeline" of old cases finally being settled. But he noted that the government will continue to investigate such cases, and it's important to understand reporting and promotion requirements.