In 2004 the beleaguered drug giant Schering-Plough
agreed to pay $293 million to resolve allegations in
a qui tam lawsuit relating to illegal and fraudulent
pricing of its blockbuster drug Claritin. A subsidiary
of Schering-Plough pled guilty to violations of the
criminal Anti-Kickback Act and paid a $52.5 million
fine. The three whistleblowers in this case were Charles
Alcorn, Beatrice Manning and Raymond Pironti, all of
whom were executives with a Schering-Plough subsidiary.
The Practice: Concealment of Best Price
and Kickbacks
The government alleged that Schering-Plough offered
HMO customers kickbacks in exchange for keeping Claritin
on their formularies, disguising the kickbacks as "data
fees" and "value added." The "data fees" and other disguised
kickbacks lowered the effective price of Claritin to
the HMOs. Under the Medicaid rebate statute, Schering
should have reported the effectively lowered price to
Medicaid, but failed to do so, causing Medicaid rebates
to be underpaid.
Rather than reducing the actual price of Claritin to
one of the HMOs (Cigna), (which would have meant lowering
the price to Medicaid as well), Schering-Plough devised
a scheme by which it provided the HMO with a $10 million
package of "added value." A part of this package was
an annual payment to the HMO of a "data fee" amounting
to approximately $2.4 million, purportedly for an "annual
report." In fact, the annual report was nothing more
than a restatement of information that the HMO had already
provided and was never used by Schering. This payment
constituted both a kickback and a rebate to the HMO
on the price of Claritin that should have been, but
was not, reflected in Schering's Best Price reports
to Medicaid. Schering-Plough made a similar arrangement
with another HMO, Pacificare, disguising the rebate
as "risk sharing," payment and services for Internet
development, an interest free loan in the form of prepaid
rebates, and deep discounts on other Schering Products.
The Whistleblowers
The three whistleblowers in this case worked in the
K-5 building at Schering-Plough's corporate headquarters
campus for a 100-employee subsidiary called Integrated
Therapeutics Group ("ITG"). Manning, a manager of clinical
opportunities, and Alcorn, a director of health-care
informatics, stayed with the company after the case
was filed in 1998 until they were laid off in 2002,
during which time they secretly helped the government
gather evidence. Pironti, an operations manager who
lived in Clinton, left shortly after the lawsuit was
filed. The whistleblowers said the case evolved from
a complaint they made to the company about what they
perceived as sexual harassment of a secretary by a company
executive. The company sought to protect the executive
and retaliated against the whistleblowers. When they
talked more about what was happening at the company,
they became convinced the actual purpose of ITG was
to make payments to HMOs that amounted to little more
than bribes, and that the executive had won the company's
protection as an architect of the fraudulent scheme.
Pironti, who had worked at Schering-Plough for eight
years and whose father had worked there for 25 years
there, said that a leadership change in the late 1980s
and early 1990s had created a corporate culture that
looked for "whoever could come up with the best scheme."
Alcorn now attends Temple University Law School. Manning
is studying ethics at Andover Newton Theological School,
and Pironti is a consultant specializing in health-care
and information technology. The three shared in a qui
tam award of roughly $31 million.
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