Oregon Department of Justice

Attorney General Ellen F. Rosenblum

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AG Announces Settlement With Schering Plough, Inc. On Medicaid Payments For Claritin

August 4, 2004

Oregon Attorney General Hardy Myers today joined the United States Attorney for the Eastern District of Pennsylvania, the Office of Inspector General of the United States Department of Health and Human Services, and the National Association of Medicaid Fraud Control Units ("NAMFCU") to announce a settlement with pharmaceutical manufacturer Schering Plough, ("Schering") to pay $281.5 million in damages and penalties to the State Medicaid Programs from Schering's underpayment of Medicaid Drug Rebates on its blockbuster antihistamine drug, Claritin. As part of the settlement, the State of Oregon Medicaid Program will recover approximately $180,000 in restitution and penalties. This global settlement involves the federal government, 49 states plus the District of Columbia.

The Federal Medicaid Drug Rebate statute requires that all pharmaceutical manufacturers which supply products to Medicaid recipients provide the Medicaid Programs the benefit of the "best price" available for that product. The manufacturers are obligated to file "best price" information with the Centers for Medicare and Medicaid Services ("CMS"); CMS then uses this information to calculate rebates for the state Medicaid Programs. The federal law requires the "best price" reported by manufacturers be inclusive of discounts, rebates, payments and other incentives. In this case it was alleged that Schering, when negotiating with two HMOs to keep Claritin on formulary in lieu of a competitor product, provided the HMOs with certain discounts, concessions and incentives, which were then not reported to CMS as part of the Claritin "best price". The result was that the State Medicaid Programs received millions less in rebates from Schering than would have been received had Schering's "best price" reporting for Claritin been accurate and complete as required by law.

The alleged conduct impacting best price included Schering's payment to one of the HMOs of a $2.5 million "data processing fee" for utilization reports the HMO was otherwise already obligated to provide Schering; Schering's "prepayment of rebates," the equivalent of providing interest free loans; and Schering's agreement to pay one HMO's antihistamine costs if those costs reached a certain percentage over the prior year.

Under the global settlement, Schering Sales Corporation, a subsidiary of Schering, today pled guilty to federal criminal anti-kickback charges in federal court in Philadelphia, and will pay a fine of $52.5 million; the anti-kickback statute makes it a federal crime to provide financial incentives for prescribing/providing products paid for with federal health care dollars. Schering also entered into a civil settlement under the Federal False Claims Act, agreeing to pay a total of $282.5 million to resolve its civil liability for underpaying Medicaid Program drug rebates. The United States Government will collect a share of the recovery proportional to the federal contribution to the State Medicaid Programs; the states will share $140.7 million, allocated according to states' respective Medicaid Program utilization for Claritin. Because the Oregon Medicaid Program strictly limited coverage for allergy medications, Oregon's actual losses from the alleged underpayment of Medicaid Drug Rebates for Claritin were under $90,000.

The Attorney in Charge of the Oregon Department of Justice Medicaid Fraud Unit joined Medicaid Fraud Assistant Attorneys General from Ohio, Pennsylvania and Illinois, and federal attorneys, to lead negotiations and achieve this landmark settlement. In addition to the significant monetary recovery, as a condition of the settlement, Schering is required to report accurate pricing information to Oregon, and to the federal government, on its products. As part of the global settlement, Schering also entered into a Corporate Integrity Agreement ("CIA") with the United States Department of Health and Human Service's Inspector General, which will require strict scrutiny of Schering's pricing and sales practices for the next five years.

Contact:

Kevin Neely, Justice, (503) 378-6002
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