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Schering-Plough - $293 million, 2004

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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