Criminal Prosecutions of Schering-Plough Corporation

In 2004, Schering Sales Corporation, a sales and marketing subsidiary of drug manufacturer Schering-Plough Corporation, pleaded guilty and paid a $52.5 million fine on charges that it paid a health maintenance organization (HMO) a kickback to induce the HMO to keep Schering's drug, Claritin, on its formulary (a list of drugs that the HMO covers for its beneficiaries). Schering-Plough also settled its Fales Claims Act liability and paid the United States, 50 state Medicaid programs, and certain Public Health Service (PHS) entities, approximately $293 million for failing to report the company's true best price for Claritin to the Medicaid programs. At the same time, Schering-Plough entered into a Corporate Integrity Agreement, or CIA with the HHS/OIG to correct its government pricing and Medicaid rebate reporting failures.

In the late 1990s, Claritin was Schering's best-selling drug. Claritin was substantially  more expensive, however, than its biggest competitor, Allegra. When one of Schering's best customers demanded a price reduction in Claritin—because it cost the HMO millions of additional dollars a year to purchase Claritin instead of Allegra—Schering refused, in part, because it knew that it then would have to lower the Claritin price for the Medicaid programs. Under the Medicaid Drug Rebate Statute, drug manufacturers are required to report their "best prices" to the Federal Government and to pay quarterly rebates to Medicaid to ensure that the nation's insurance program for the poor receives the benefit of favorable drug prices offered to other large purchasers of drugs. As a participant in the Medicaid Rebate Program, Schering was required to report its "best price" for and to pay rebates on Claritin. Similarly, under the provisions of the PHS drug pricing program, Schering was required to charge PHS entities such as AIDS drug programs and community health centers a discounted price, based in part on the Medicaid price.

After the HMO removed Claritin from its formulary, Schering offered to make up the difference in price between Claritin and Allegra by offering the HMO a $10 million package of added value, in lieu of an actual price reduction on Claritin. The United States alleged that, as part of this "value added" package, Schering offered to provide $3 million worth of deeply discounted Claritin Reditabs, health management services at far below fair market value, and an interest free loan in the form of prepaid rebates. Schering also offered to pay an annual fee of 2% of the annual gross sales of Schering drugs to the HMO, or approximately $2.4 million, disguised as a "data fee" in order to give the appearance that the fee was a fair market value transaction rather than a hidden inducement to the HMO to keep Claritin on its formulary.

Schering also provided, to another HMO, a risk share arrangement in which Schering covered a portion of the managed care customer's respiratory drug costs, provided deep discounts on other Schering products, provided payment and services for Internet development, and provided an interest free loan in the form of prepaid rebates. Because of Schering's failure to account for these discounts in its reported best price for Claritin, the Medicaid program and PHS entities paid far more for Claritin from 1998-2002 than Schering's two managed care customers.

In an unrelated matter, Schering-Plough Corporation, Schering Corporation, and Warrick Pharmaceuticals paid the United States and the state of Texas $27 million to settle allegations that Warrick, a division of Schering-Plough, submitted false pricing information for its generic line of allergy and respiratory drugs. The government alleged that Warrick's manipulation of wholesale acquisition costs resulted in inflated claims for Federal and Texas Medicaid funds.

In 006, Schering-Plough Corporation, together with its subsidiary, Schering Sales Corporation, agreed to pay a total of $435 million to resolve criminal charges and civil liabilities in connection with illegal sales and marketing programs for its drugs Temador, used in the treatment of brain tumors and metastasis, and Intron A, used in the treatment of superficial bladder cancer and hepatitis C.
Schering Sales Corporation agreed to plead guilty to charges that it conspired with others to make false statements to the FDA in response to the FDA's inquiry concerning certain illegal promotional activities by the company's sales representatives at a national conference for oncologists. Schering Sales also agreed to plead guilty to charges that it conspired with others to give free Claritin Redi-Tabs to a major health maintenance organization (HMO) to disguise a new lower price being offered to the HMO to obtain its business.

As part of the civil resolution, Schering-Plough Corporation agreed to pay $255,025,000 to resolve civil False Claims Act liabilities and liabilities under the Food Drug and Cosmetic Act in connection with illegal sales and marketing programs for its drugs Temodar for use in the treatment of brain tumors and Intron A for use in treatment of superficial bladder cancer and hepatitis C. The civil resolution also resolves allegations of Medicaid Drug Rebate fraud involving Schering's drugs Claritin RediTabs, and K-Dur, used in treating stomach conditions.

Source: HHS Health Care Fraud and Abuse Control Program, Annual Reporst for FY 2004 and 2006

This article was posted on December 26, 2005.

Links to Recommended Companies