Schering Subsidiary Takes Fall For Criminal Charges Under DoJ Settlement

Schering-Plough's settlement of off-label promotion and Medicaid fraud charges with the Boston U.S. Attorney's office places criminal responsibility with a Schering shell subsidiary.

The total settlement of $435 mil., announced Aug. 29, includes a $180 mil. criminal fine to be paid by Schering Sales Corporation.

The settlement relates to Medicaid rebate reporting for K-Dur (potassium chloride) and Claritin RediTabs and sales and marketing programs for products including brain cancer drug Temodar (temozolomide) and hepatitis C therapy Intron A (interferon alfa-2b).

The firm initially signed a CIA with the OIG in 2004 as part of its $345.5 mil. settlement with the Philadelphia U.S. Attorney, which resolved kickback and Medicaid pricing charges relating to Claritin.

In addition to the fine, Schering Sales Corp. will plead guilty to "a one count criminal conspiracy to make false statements to both the Food and Drug Administration regarding its improper drug promotional activity and to the Health Care Financing Administration regarding its best price for certain drugs," the Boston U.S. Attorney's office said.

"As a result of its criminal conviction, Schering Sales will be excluded permanently from participation in all federal health care programs."

The sales unit - which marketed and sold Schering-Plough products and employed its sales force - is making the criminal plea despite being essentially eliminated in 2004 following a separate agreement with the Philadelphia U.S. Attorney's office.

Since the Philadelphia settlement, Schering Sales Corp. has been a legal entity with limited assets and no personnel; employees were shifted to other Schering-Plough divisions.

Schering will continue to participate in government programs under a revised corporate integrity agreement with the HHS Office of Inspector General.

The settlement resolves allegations surrounding Medicaid best price reporting for K-Dur (potassium chloride) and Claritin RediTabs .

According to the complaint, the company made false statements to the Health Care Financing Administration regarding the "best price" of Claritin RediTabs "by concealing the fact that Schering was providing an HMO free drugs contingent on purchase of the drugs from Schering."

This practice, which occurred from the second quarter of 1998 to the fourth quarter of 1999, allowed Schering to retain approximately $4.39 mil owed in rebates to state Medicaid programs, the complaint asserts.

The total $435 mil. settlement, which is subject to court approval, will be distributed among several programs.

Schering will pay $159.5 mil. to Medicare, the federal portion of the Medicaid program, the Veteran's Administration and the Department of Defense, and the Federal Employees Health Benefits. The firm will pay $91.6 mil. to settle its civil liabilities with state Medicaid programs and $3.9 mil. to Public Health Service programs.

Schering had set aside $500 mil. to settle the Boston investigation; the additional reserves could be used for separate ongoing inquiries by HHS, DoJ and several states into average wholesale price practices.

"With this agreement, we are putting issues from the past behind us," the company said, noting the violations occurred prior to the arrival of current CEO Fred Hassan.

The company is not pleading guilty to criminal charges related to off-label promotion, despite the inclusion of off-label promotion in the criminal investigation.

Off-label promotion violations are covered under the civil portion of the settlement: Schering will pay $255 mil. to settle civil liabilities under the False Claims Act and the FD&C Act in addition to the criminal fine of $180 mil.

The government's complaint includes charges that Schering Sales promoted oncology drugs Temodar (temozolomide) and Intron A (interferon alfa-2b) for unapproved uses and offered kickbacks to doctors.

[Editor's note: This story was contributed by " ¹ The Pink Sheet ," your weekly source for prescription pharmaceutical news. For more information call 1-800-332-2181.]