Drug makers are just a (another) bunch of crooks or wot ?
 http://www.nytimes.com/2004/07/16/business/16settle.html?th

Guilty Plea Seen for Drug Maker
By GARDINER HARRIS

Published: July 16, 2004



he drug giant Schering-Plough has agreed to pay $350 million in fines and plead guilty to criminal charges that it cheated the federal Medicaid program, according to people involved in the case.

The settlement, expected to be announced next week with federal prosecutors in Philadelphia, stems from a six-year investigation prompted by three whistle-blowers who accused Schering-Plough of selling its products to private health care providers for far less than it sold them to Medicaid.

Federal law requires drug makers to offer their lowest prices to Medicaid, the federal and state health program for the poor.

In the settlement, which is still subject to final approval from a judge, Schering-Plough is expected to admit that it gave grants to the private providers to conduct patient education and marketing programs as part of a kickback scheme to induce them to buy Schering-Plough's drugs at relatively high prices, according to a person involved in the investigation and another informed of the negotiations. Schering-Plough then billed Medicaid officials at these high prices - without giving the offsetting grants.

Last year, Bayer paid $257 million and GlaxoSmithKline paid $86.7 million to settle similar allegations.

A Schering-Plough spokesman declined to comment, as did a spokesman for Patrick L. Meehan, the United States attorney in Philadelphia, whose office has been conducting the investigation. The Schering-Plough case is part of a broad assault by federal prosecutors into the drug industry's marketing practices.

Federal investigations in Philadelphia, Boston and Washington have resulted in subpoenas to nearly every big drug maker, seeking information about suspected aggressive and illegal sales techniques that cost taxpayers billions of dollars.

Many of the cases were started by whistle-blowers under a Civil War-era statute that allows citizens to file suits on behalf of the government in cases of suspected defrauding of taxpayers. If government prosecutors take up such a case, resulting in a conviction or settlement, the whistle-blower is entitled to a portion of the award. Since 2001, drug companies have agreed to pay more than $2 billion in fines to settle suits brought by whistle-blowers.

Of those fines, tens of millions were paid directly to the whistleblowers.

In one recent case, Pfizer agreed in May to pay $430 million to settle allegations that a subsidiary marketed a pain drug improperly. Of that settlement, $27 million went to a former executive who brought the original claim against the company.

As a result of these cases, most drug companies say that they are overhauling their marketing programs and strengthening their internal policing of sales practices.

Inquiries like the one involving Schering-Plough focus in part on an exception to the 1990 Medicaid "best price" law that has allowed drug makers sometimes to sell their products for a "nominal" price - defined as less than 10 percent of the manufacturer's average price, without having that price counted as part of the calculation of what Medicaid is charged. The exception was intended to encourage drug makers to sell their products at steep discounts to charitable organizations and clinics, like Planned Parenthood.

But some drug makers have used "nominal" prices in sales to hospitals and managed care organizations, subverting the intent of the law, officials contend.

When prosecutors bring these cases, drug companies rarely contest the charges because the risks of a court battle are too great. The sanctions prosecutors could seek include a ban on all sales to the government - an unthinkable penalty for a drug maker, because government health programs are among the drug industry's largest customers.

Schering-Plough, with sales last year of $8.33 billion, is one of the world's largest drug makers. But the company, based in Kenilworth, N.J., has struggled since 2002 when it lost its patent on its best-selling allergy pill, Claritin. And its legal problems have been extensive. In 2002, the company paid a $500 million fine to the Food and Drug Administration to settle claims that it had failed for years to manufacture its products safely. Among other issues, a citizens' group contended that the deaths of 17 people might have resulted from their use of faulty asthma inhalers manufactured by Schering-Plough.

Richard Kogan, the former chairman and chief executive, left Schering-Plough last year under criticism for having met with selected investors just before a steep decline in the company's share price and before the company announced its results to the public. Last September, the company and Mr. Kogan settled a resulting selective-disclosure investigation by the Securities and Exchange Commission; the company paid a fine of $1 million and Mr. Kogan paid $50,000.

Even with the various settlements so far, Schering-Plough's legal troubles are not over. The company remains under investigation by prosecutors in Boston and Washington over whether it paid physicians to prescribe its drugs and whether it reported inflated wholesale prices to the government's Medicare program, leading government health officials to pay more for its drugs than necessary. Over the last two years, the company has set aside $500 million to pay fines expected in those cases and the Philadelphia inquiry.

The new chairman and chief executive, Fred Hassan, has promised to change the company's manufacturing and marketing operations. The company's most recent annual report is titled "Building the NEW Schering-Plough," with the subtitle "To earn trust, every day."