Schering Settles Kickback Case

Schering-Plough Corp. will pay $346 million to settle charges that it paid a kickback to a big health insurer to protect the price of its top-selling allergy drug, the company and federal prosecutors announced Friday.

A subsidiary, Schering Sales Corp., also will plead guilty to violating an anti-kickback law and will be banned from participating in federal health programs for five years, authorities said.

The settlement is the result of a five-year federal investigation into Schering’s attempts to market Claritin as the drug faced increasingly stiff competition from alternatives such as Allegra.

Prosecutors said that when Cigna Corp. threatened to switch its patients to other, less-expensive medications, Schering offered the company $10 million in incentives, plus a $1.8-million “data fee” for information it did not actually need.

The agreement lowered the price of Claritin for Cigna, but violated a law requiring drug makers to give their lowest prices to Medicaid, the federal health program for the poor.

Patrick Meehan, the U.S. attorney for eastern Pennsylvania, called the deal an “old-fashioned kickback” and a blatant attempt to evade Medicaid rules.

“This wasn’t a mistake. It was a marketing strategy. The result was that programs created to provide healthcare to the poorest among us were actually paying more for drugs than those who have private health insurance,” he said.

Kenilworth, N.J.-based Schering said that as part of the settlement it would pay a criminal fine of $52.5 million and civil damages of $293 million. Some of those damages, though, will be offset by credit the company will receive for $53.6 million in Medicaid rebates that it has previously paid. The five-year exclusion from federal healthcare programs will apply only to Schering Sales, not its parent.

Senior Vice President Brent Saunders acknowledged that Schering-Plough broke the law, and said it has reformed its sales operations to address concerns raised in the investigation.

“We hope that we’ve put the policies in place that will prevent this from happening again,” Saunders said.

Schering-Plough shares fell 7 cents Friday to $19.46 on the New York Stock Exchange.