Schering-Plough fined for off-label marketing, overcharging, kickbacks.

Pharmaceutical giant Schering-Plough Corp. recently announced it would pay $435 million as part of an agreement with the U.S. Attorney's Office for the District of Massachusetts and the U.S. Department of Justice (DOJ) to settle civil and criminal charges related to four of its prescription products. The investigation found that Schering improperly marketed its drugs for unapproved off-label uses, overcharged federal and state health care programs, and paid physicians kickbacks for prescribing certain drugs.

The charges involve the company's antihistamine Claritin; K-Dur, which treats stomach conditions; and the cancer drugs Temodar and Intron A. The agreement, announced August 29, is subject to court approval.

"The American people, as both taxpayers and consumers, expect our health care system to be free from fraud and corruption," said U.S. Attorney Michael Sullivan in a statement. "The pharmaceutical industry has an obligation to ensure that all rules, regulations, and laws are complied with. To do less erodes public confidence, compromises the patient-physician relationship, and adds costs to important government programs. We will not tolerate attempts to profit at the expense of the ill and needy in our society."

Schering Sales Corp., a subsidiary of Schering-Plough, agreed to plead guilty to conspiracy and pay a criminal fine of $180 million. Drug makers are required to report their best prices to the Health Care Financing Administration and to pay rebates to Medicaid, so that Medicaid gets the benefit of the lowest price. However, Schering Sales conspired to give an HMO Claritin RediTabs at a low price that it did not report, to obtain the HMO's business and avoid paying millions of dollars in rebates to Medicaid, according to a DOJ press release.

The conspiracy count also included false statements that Schering Sales made to the FDA in response to the agency's inquiry into sales representatives' illegal promotional activities at a national conference for oncologists. According to the DOJ press release, these statements" were designed to reassure the FDA that the promotional activities were isolated and not directed by home office, when in fact, the activities were widespread and part of the national marketing plan." The DOJ said the company "sought to falsely lull the FDA into believing that it had taken appropriate steps to reinforce the message with its sales representatives that such promotional activities were prohibited."

Because of the sales unit's criminal conviction, it will be permanently barred from participating in all federal health care programs. But other parts of the company that are allowed do business with Medicare and Medicaid have taken over marketing. Brent Saunders, the company's senior vice president of global compliance and business practices, told the Wall Street Journal that Schering Sales "is an entity whose sole purpose is to plead guilty in these matters." (Sylvia Pagan Westphal et al., Schering-Plough Settles Charges for $435 Million, Wall St. J. (Aug. 30, 2006).)

To settle civil False Claims Act liabilities, Schering-Plough will pay $255 million for misreporting its best price of Claritin RediTabs and K-Dur to avoid paying Medicaid rebates (thereby overcharging Public Health Service programs); paying physicians to prescribe Intron A and Temodar; and promoting Temodar for certain brain tumors and brain metastases and Intron A for superficial bladder cancer--off-label uses not approved by the FDA.

Peter Rost, formerly a senior executive at Pfizer, Inc., said such off-label marketing is common. "The companies are pushing the limits," he said. Rost filed suit against Pfizer under the False Claims Act for its off-label marketing and other alleged misconduct.

The DOJ intervenes in only about 20 percent of False Claims Act cases, Rost said, because "they simply don't have the manpower" to cover all the claims. "We're just seeing the tip of the iceberg," he added.

Patrick Burns, director of communications at the Taxpayers Against Fraud Education Fund, which promotes using the False Claims Act to combat fraud against the federal government, agreed that the government has limited resources. "It pleads down the cases because it's trying to manage its caseload," he said. "It's a huge swamp of fraud, and we're trying to drain it with a garden hose."

James Moorman, the fund's president and CEO, noted that claims involving pharmaceutical companies make up a larger portion of False Claims Act cases than they once did.

But are penalties under the act an effective deterrent to misconduct? "The fines are just a small percentage of one year of sales," Rost said. "To the companies, this is just the cost of doing business."

The government should increase its enforcement resources and the strength of its penalties, Burns said. "The goal is not for the False Claims Act to be a parasite that the company can live with. The goal is to knock them down--so they never forget it."

He explained that "an iron triangle has helped fraud escape detection"--including the complexity of the fraud, employees' fear of retaliation, and a lack of knowledge about the False Claims Act as a remedy. But once a company is caught, its employees become aware that a remedy exists, he added.

Two years ago, Schering paid a $52.5 million fine for paying an HMO a kickback to keep Claritin on its formulary. It also paid $293 million for failing to report the company's best price for Claritin to the Medicaid programs.

Fraud has been profitable for companies, Burns said. "As soon as it is no longer profitable, companies will stop doing it."