Schering Plough May Face Obstruction
5 , 2003
By MELODY PETERSEN
The Schering-Plough Corporation
said yesterday that it could soon be indicted in a federal
investigation into its prescription drug marketing practices,
and face charges that employees destroyed documents related
to the case.
According to the company, prosecutors are examining whether
Schering-Plough illegally gave financial grants and other
items of value to doctors and other customers, whether it
marketed drugs for unapproved uses and whether it submitted
false pricing information to the government so that Medicaid
paid too much for its products.
Most significant, lawyers said, was Schering-Plough's disclosure
that a grand jury was weighing obstruction of justice charges.
Evidence that the company sought to impede a government investigation
could prompt prosecutors to take a tougher line against Schering
in resolving any charges.
The allegations against Schering-Plough are the latest in
a spate of investigations and lawsuits by private parties,
state governments and the federal government focused on the
pharmaceutical industry's marketing practices. The cases have
been spurred by rapidly rising increases in the costs of prescription
drugs and the burden those costs place on governments, employers
Schering-Plough, which is based in Kenilworth, N.J., said
it received a letter Wednesday from the United States attorney's
office in Boston saying it was a target of a criminal investigation
of these matters. By law, publicly traded companies must quickly
disclose significant information to their shareholders.
Schering reiterated yesterday that it had made changes in
its sales and marketing practices, and that it was cooperating
with the United States attorney's office.
The investigation began more than two years ago, and the
company has acknowledged aspects of it. But legal experts
said the company's receipt of what it called "a target
letter" diminished its chances of being able to settle
the matter soon.
In February, the company said it had set aside $150 million
to help cover a settlement with federal prosecutors in Boston
and Philadelphia. Analysts said they thought that the company,
which is struggling with declining sales and a host of other
legal matters, would now be forced to pay far more to resolve
the case. The company did not disclose any new information
about the investigation by the Philadelphia office.
A spokeswoman in the the United States attorney's office
in Boston declined to comment yesterday.
It was not clear what documents the government thinks were
destroyed, who it thinks destroyed them or when the events
took place. The company declined to comment further, other
than to say that prosecutors had given it the chance to submit
evidence to defend itself.
If Schering-Plough is ultimately convicted of a felony involving
health care fraud, the government could seek to bar its prescription
drugs from the federal Medicare and Medicaid programs. Health
care companies and their lawyers call such a step "the
death penalty," because of the devastating effect it
would have on a company's business.
To date, no large pharmaceutical company has been excluded
from the Medicare and Medicaid programs, even after pleading
guilty to felony violations.
Last year, TAP Pharmaceutical Products paid $875 million
to settle criminal and civil charges that it had illegally
manipulated the Medicare and Medicaid programs. The company
was not excluded from the programs, but was forced to enter
into a "corporate integrity agreement" in which
it agreed to widespread changes in its marketing practices
under monitoring by the government.
Some of the charges being leveled against Schering are similar
to those in the TAP case. Prosecutors contended that TAP sales
representatives gave free samples of Lupron, a drug for prostate
cancer, to urologists and then helped the doctors get government
reimbursements of hundreds of dollars for each dose.
Other claims against Schering are similar to prosecutors'
findings earlier this year in a case against Bayer. The company,
based in Germany, agreed to pay $257 million in April to settle
allegations that it had engaged in a scheme with Kaiser Permanente,
a large health care provider, to relabel bottles of Cipro,
an antibiotic, to hide the low prices it was charging Kaiser.
Under federal law, drug companies must sell drugs to Medicaid
programs at their lowest price.